Global stock markets experienced significant volatility and downturns following the US midterm election results, which saw Democrats achieve a "blue tsunami," according to Maggie Pagano writing for the Daily Mail. The VIX, Wall Street's fear index measuring expected volatility in the S&P 500, surged 70% in the aftermath, marking one of the worst trading days on US markets.
US traders reported one of the largest swings in market sentiment in months, with retail investors offloading a net $338 million in individual US stocks on Thursday alone. This sell-off was the largest single-day divestment since March 2020. The Philadelphia semiconductor index suffered a particularly sharp decline, falling 12%, its second-largest historical drop. The rout quickly spread internationally, with Asian markets experiencing steep plunges before European exchanges followed suit. By Friday's close, the FTSE 100 had recovered some losses but was still down 109 points at 10,674.
Tech-heavy Asian markets were hit the hardest. South Korea's Kospi index fell by 8% in early trading on Friday, triggering circuit breakers and a halt in trading due to fears of widespread margin calls. Shares of major chip manufacturers Samsung Electronics and SK Hynix plummeted amid concerns that spending on AI infrastructure could be curtailed.
In response to the market turmoil, the South Korean government announced emergency measures to allow brokers to waive margin loan collateral for investors for three months, aiming to prevent forced selling and stabilize the market. This situation is particularly concerning as many South Korean retail investors had borrowed heavily to invest in stocks, now facing significant losses.
The volatility has raised questions about the sustainability of the AI technology sector. Valuations for AI companies, such as Anthropic, which was reportedly valued at $2 trillion for its Claude AI assistant, are now being reassessed. Anthropic is also said to be delaying its IPO roadshow due to the pessimistic market mood.
Concerns are mounting regarding the future of the AI revolution and the financial stability of major tech companies. Questions persist about whether giants like Nvidia, Microsoft, and Google can meet their projected profits, especially given the substantial debt they have incurred to fund AI development. Hedge fund manager Paul Singer had previously warned of a potential bear market driven by the combination of AI hype, rising inflation, and the US budget deficit.