WS #16947

The market is undergoing a severe, systemic deleveraging of the AI growth narrative, driven by a Democratic sweep in the US midterms that has triggered fears of aggressive regulation and spending cuts. The Nasdaq 100 has dropped over 6%, entering correction territory, while the VIX has spiked 63% to 27.15, its highest level since April 2025. This is not a broad-based recession panic but a concentrated rotation away from high-multiple tech and AI infrastructure stocks, with the S&P 500 and Dow also sliding but finding slightly more support than the tech-heavy Nasdaq. The AI sector is facing a triple-threat: regulatory headwinds from a Democratic Congress, a sudden pause in hyperscaler capex (specifically Microsoft's delays), and supply chain disruptions (Micron's Taiwan plant pause). This has caused a massive repricing of AI hardware and software stocks. AMD is down 15.6%, Micron 15.2%, and Qualcomm 9%, while AI infrastructure plays like IREN and Nebius are sliding 9-11% on the Microsoft delay news. The narrative has shifted from 'AI is inevitable' to 'AI spending is slowing and regulated'. Despite the chaos, there are isolated pockets of strength and emerging themes. The energy sector remains a secondary concern due to geopolitical tensions (Iran/Hormuz), but the primary market-moving event is the tech/AI capitulation. Traders are watching circuit-breaker levels, and while a bounce is being attempted in the QQQ, the sentiment is overwhelmingly bearish for the near term. The market is now pricing in a 'soft landing' for the economy but a 'hard landing' for the AI valuation model.