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Nasdaq drops into correction territory — here’s what typically happens next
The Nasdaq has entered correction territory after Democrats won both chambers of Congress and made gains in Texas, where Gina Hinojosa won the governorship. Investors are concerned that tighter restrictions on data centre development could slow construction and weigh on companies linked to artificial intelligence.
Past midterm cycles suggest the Nasdaq has usually risen over the following year, but with possible near-term turbulence. Analyst Frank Cappelleri found the index was higher 12 months after 12 of 13 midterm elections since 1974; after the 2018 election, it fell sharply in December before ending about 15% higher a year later. On Thursday, the iShares Semiconductor ETF dropped 12%, its steepest one-day fall since March 2020.
In short
- The Nasdaq has entered correction territory after election results.
- Data centre restrictions could pressure AI-related companies.
- Semiconductor shares fell sharply, while past cycles point to possible recovery.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Investors may reasonably see tighter limits on data centre development as a risk to construction plans and to the expected growth of companies tied to artificial intelligence. The sharp fall in semiconductor shares suggests markets are already reassessing those prospects, and past midterm gains do not rule out further near-term losses.
The case against
A correction may reflect uncertainty and short-term repricing rather than a lasting decline in the technology sector. Historical midterm patterns offer some reassurance: the Nasdaq was higher a year after 12 of 13 elections since 1974, and after its sharp December fall in 2018 it ended roughly 15% higher over the following year.