Stocks soared on the Democratic sweep. Less than 24 hours later, the AI trade cracked.

Key Points:

• Stocks initially surged on Wednesday after Democrats won control of both the House and Senate, with the Dow rising over 1,500 points and the S&P 500 rallying nearly 2%, as investors welcomed reduced political uncertainty and a potential check on President Trump's agenda.
• The rally was short-lived, as stocks plunged on Thursday, with the Dow dropping more than 1,800 points and the Nasdaq falling 5.5%, driven by a sell-off in artificial intelligence-related and chip stocks amid concerns over new data center restrictions under Democratic governors.
• The VIX volatility index spiked to its highest level since March, reflecting heightened market uncertainty and a sharp shift in investor risk appetite, contributing to the rapid reversal from optimism to a market rout.
• Hedge funds had been reducing exposure to AI-related stocks for over a month, and the election results, including potential moratoriums on new data center approvals in key states like Texas, intensified the retreat from the AI sector.
• The week's volatility underscores the fragile investor confidence and ongoing skepticism about the sustainability of the AI boom, culminating in the S&P 500 posting its worst weekly performance since June.