S&P 500 Sinks 4.4%, Nasdaq Drops 5.5% as AI Sell-Off Deepens

Key Points

• US stocks erased Wednesday’s rally. The Dow fell 3.4%, the S&P 500 lost 4.4% and the Nasdaq Composite dropped 5.5% on Thursday.
• AI policy concerns hit technology shares. Investors reassessed the outlook for data-centre expansion following the Democrats’ congressional victory.
• SP500 remains vulnerable below 7,400. The supplied hourly chart shows a sharp decline towards 7,300, with the rebound yet to establish a sustained recovery.
• Employment data is the next major catalyst. Friday’s US jobs report could influence growth expectations, Treasury yields and the appetite for equities.

Market Move

US stocks plunged on Thursday, 5 November, as heavy selling in AI and semiconductor shares spread across Wall Street. The decline erased Wednesday’s post-election gains, reversing optimism that followed the removal of election uncertainty.

The Dow Jones Industrial Average fell 1,833.06 points, or 3.4%, to 51,523.06. The S&P 500 dropped 334.89 points, or 4.4%, to 7,353.73, while the Nasdaq Composite lost 5.5% to 24,315. Small-cap stocks also retreated, with the Russell 2000 falling 4.4%, showing that selling extended beyond large technology companies.

Retail investors joined the selling. According to reports, individual investors sold a net of $265 million in individual US stocks, their largest daily net selling total since 2020.

Why Traders Are Watching

Thursday’s reversal showed that investors were already considering how a Democratic-controlled Congress could affect business investment, regulation and corporate earnings. Technology shares bore the brunt of the sell-off as investors questioned whether tighter oversight of AI infrastructure could weaken spending and earnings expectations. Concerns on data-centre development turned into a broader reduction in exposure to US equities.

Oil continues to be another source of uncertainty in the market. Prices have recovered as investors monitor developments in Iran. Brent traded around $98 per barrel, while WTI was around $90, reversing part of the previous session’s decline. If prices continue rising, it could further pressure corporate margins.

Key Trading Levels

SP500 remains weak after the sharp decline from around 7,700. Price is trading close to a falling nine-period moving average, while the latest bounce has yet to reclaim 7,400.

A sustained recovery above 7,380–7,400 would be an initial sign that selling pressure is easing. However, a stronger recovery would require follow-through towards 7,450 and 7,480–7,500. Below the market, 7,300–7,310 is the clearest near-term support area.

Bullish and Bearish Setups

The bullish setup requires evidence that buyers can defend the recent low and reclaim nearby resistance. Holding above 7,400 after a retest would strengthen the case for a recovery towards 7,450–7,500. A return below 7,330 would weaken that recovery attempt.

The bearish setup follows the prevailing short-term direction. Rejection near 7,400, followed by a break beneath 7,300, would suggest sellers remain in control. A sustained recovery above 7,400 would weaken the immediate bearish case.

Disclaimer

The price levels and market scenarios above reflect the author’s assessment at the time of writing. They do not represent financial advice or an official recommendation from VT Markets. Traders should conduct their own analysis and manage risk carefully.

SP500 Prediction: What Could Move Prices?

The next major catalyst is Friday’s job report. US-based employers reported 43,994 announced job cuts in October, down sharply from a year earlier and the lowest October total since 2023. However, this does not indicate stronger permanent hiring as employers may retain existing staff without adding permanent roles. Seasonal hiring for the holidays can also lift recruitment numbers temporarily.

Friday’s jobs report will provide a broader picture of hiring, unemployment and wage growth.

Stock prices could recover if:

• AI and semiconductor shares stabilise. Reduced selling in major technology stocks could help the index establish a floor.
• Employment data supports steady growth. Resilient hiring with contained wage pressure could improve confidence without sharply lifting yields.
• Policy proposals appear less restrictive than feared. Clearer guidance on data-centre development could reduce uncertainty around investment plans.
• Oil prices ease. Lower energy costs could improve the outlook for inflation and corporate margins.

Prices could fall further if:

• Technology selling continues. Further reductions in exposure to large index constituents could outweigh strength elsewhere.
• Regulatory concerns intensify. Concrete restrictions on AI infrastructure could trigger further revisions to earnings expectations.
• Jobs data unsettles markets. Strong wage growth could lift yields, while weak hiring could raise concerns about demand.

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