The morning after the vote brought a brutal reality check.
Wall Street woke up on November 5, 2025, to a sea of red that the previous night’s exit polls failed to predict. The Nasdaq Composite plunged 2.1 percent in early trading, a move triggered not by a single headline but by a systemic deleveraging event. This is not a simple market dip. It is a fundamental repricing of the artificial intelligence trade against a backdrop of surging Treasury yields and shifting fiscal expectations. The index is now testing the critical 18,400 support level, a threshold that has held since the August volatility spike.
Institutional selling intensified as the 10-Year Treasury yield surged to 4.62 percent. This represents a 15 basis point jump in less than 24 hours. For growth stocks, this is a mathematical poison. When the risk-free rate climbs this aggressively, the discounted cash flow models for companies like Nvidia and Microsoft require immediate downward adjustments. The market is effectively telling us that the era of cheap capital used to fund massive AI data centers is over. Investors are now demanding immediate ROI rather than the long-dated promises of 2024.
The AI Capex Fatigue and NVDA Performance
Nvidia (NVDA) led the retreat, falling 4.4 percent to $132.10. The catalyst was a leaked internal report suggesting that Blackwell B200 production yields are still struggling to meet the Q4 targets required to justify current P/E ratios. While the company remains the undisputed king of the GPU space, the technical mechanism of this sell-off is rooted in gamma hedging. As the stock broke below its 50-day moving average, market makers were forced to sell underlying shares to balance their options portfolios, creating a self-reinforcing downward spiral.
Per the latest Reuters market data, institutional flow indicates a rotation out of the ‘Mag 7’ and into defensive sectors like utilities and consumer staples. This is a classic flight to safety. The Nasdaq’s concentration risk is finally being punished. When five companies represent nearly 40 percent of the index’s weight, a hiccup in one becomes a cardiac arrest for the entire market. Microsoft’s revised Azure guidance, which now sits at a modest 28 percent growth for the next quarter, has shattered the illusion of infinite scaling.
The Technical Mechanism of the Liquidation
This isn’t just retail panic. The volatility is being driven by 0DTE (Zero Days to Expiration) options contracts. On November 4, the volume of put options on the QQQ ETF reached a record high. When these contracts are bought in bulk, market makers must hedge by shorting the underlying index. This creates a feedback loop where the more the market falls, the more selling pressure is generated by the very institutions that are supposed to provide liquidity.
Furthermore, the CBOE Volatility Index (VIX) spiked to 24.5 today. This level indicates that the market is no longer in a ‘buy the dip’ mindset but has shifted into a ‘sell the rip’ regime. Credit spreads are also widening, signaling that the corporate bond market is starting to price in a higher probability of a hard landing in the first half of next year. The liquidity that flooded the system in early 2025 is being sucked out as the Federal Reserve maintains its ‘higher for longer’ stance despite the political noise.
Analyzing the Sector Rotation
- Semiconductors: The SOX index is down 3.8 percent. The primary driver is the uncertainty surrounding trade policy for the upcoming 2026 fiscal year.
- Software as a Service (SaaS): Multiples are compressing. Companies trading at 15x revenue are being re-rated to 8x as growth slows.
- Energy: One of the few green spots. As geopolitical tensions in the Middle East persist, oil remains a hedge against the tech-heavy Nasdaq.
Investors must look at the 200-day moving average for the Nasdaq, which currently sits at 17,950. If the index fails to reclaim 18,500 by the end of this week, a test of that long-term average is inevitable. This would represent a 10 percent correction from the July peaks. The divergence between the S&P 500 and the Nasdaq is also growing. While the broader market is cushioned by value stocks and financials, the tech-heavy Nasdaq is isolated in its vulnerability.
The fiscal cliff of 2026 is already being debated on the floor of the New York Stock Exchange. With tax cuts set to expire and a new administration’s budget priorities coming into focus, the certainty that drove the 2024 bull run has evaporated. The market is now pricing in a period of stagflation where AI productivity gains fail to outpace the rising cost of debt. This is the ‘valuation trap’ that veteran analysts warned about during the speculative frenzy of last spring.
Specific attention should be paid to the upcoming FOMC minutes. If the Fed hints at a pause in rate cuts due to the election-related fiscal uncertainty, the Nasdaq could see another leg down. The correlation between Bitcoin and tech stocks has also tightened, with the digital asset falling 5 percent today, confirming that this is a broad liquidation of ‘risk-on’ assets. This is a deleveraging event that will take weeks, not days, to resolve.
The next critical data point for the market arrives on January 20, 2026, when the inauguration will clarify the new administration’s stance on the CHIPS Act and AI regulation. Until then, watch the 18,200 level on the Nasdaq 100. A break below that could trigger a cascade of systematic sell programs that would redefine the market structure for the rest of the decade.
