Global stock markets experienced a sharp decline on Friday, with significant drops in major indexes across Asia and the United States, as investor anxiety surrounding Artificial Intelligence (AI) grew in the wake of the Democratic Party's landslide victory in the midterm elections.
Japan's Nikkei index fell 6 percent, marking its largest one-day drop since April 2025. Benchmark share prices in South Korea and Taiwan also plunged by more than 8 percent shortly after trading opened, before recovering slightly as authorities intervened.
On Wall Street, the Nasdaq Composite index sank 5.5 percent, and the S&P 500 saw $3 trillion wiped off its firms. The heightened volatility led to a surge in the market's 'fear gauge.' Investors are concerned that a Democratic majority could lead to increased regulation and potentially slow down the rapid growth of the AI sector.
Former President Donald Trump attributed the market downturn to the election results, stating on his Truth Social platform that the "Stock Market crashed today because the Dumocrats had a big Tuesday." He further elaborated that the market "suffered one of the Worst Days in History based on the results of the Election," and warned that 401(k)s had dropped as a consequence.
The current jitters are impacting an AI market already under pressure due to the substantial investments companies have made in AI infrastructure. Tech companies heavily involved in the AI trade, particularly those supplying data centers and microchips, were hit the hardest. Shares of major chip manufacturers like Nvidia, Broadcom, and Qualcomm saw significant losses on Thursday, falling 9.3 percent, 10.5 percent, and 9.5 percent respectively.
In response to the sharp declines, South Korean Finance Minister Lee Hyoung-il announced temporary easing of rules on retail investors' leveraged investments. In Taiwan, the Ministry of Finance reportedly contacted executives at state-owned banks to instruct them to support the market, leading to a partial recovery in Taiwan stocks, which closed down 4.5 percent.
Despite some stabilization in Asian markets by Friday afternoon, sentiment remained fragile, with European stock futures showing a slight decline. AI chipmakers Samsung Electronics and SK Hynix fell nearly 10 percent and 12 percent in South Korea, respectively. Kioxia plunged 14 percent in Japan, and TSMC fell as much as 8.5 percent in Taiwan.
Investor sentiment also focused on concerns that a slowdown in AI infrastructure expansion could affect smaller companies. CoreWeave, a cloud firm, saw its stock slump 10 percent, and its credit default swap spreads widened to a record level, highlighting anxieties over heavy AI spending and borrowing.
Some analysts suggest the selloff may be overdone. Allen Huang, a vice president at Mega Financial Holding's equities trading department, noted that the liquidation of margin accounts indicates a potential final stage of capitulation, pointing to the circuit breaker being triggered for TSMC as a sign of a potential bottom.
In contrast to equities, bonds saw gains in Asia, with US Treasuries and government bonds in Japan and China rising. The US dollar weakened against haven currencies like the yen and Swiss franc. Masahiko Loo, chief fixed income strategist at State Street Investment Management, observed that bonds are demonstrating their traditional diversification benefits, suggesting the market movement is more a reassessment of AI policy risk than a change in the AI cycle itself.