The Nasdaq Composite fell more than 5% on Thursday, entering correction territory after closing more than 11% below its record high from last month. A correction is defined as a decline greater than 10%.
Historical data from 10 previous correction episodes over the last decade shows mixed near-term outcomes. Selloffs in 2025, 2022, 2020, and 2018 were followed by further declines over the next month. However, the Nasdaq recovered to rally mode after six months in all those cases except 2022. On average, the Nasdaq gained 9.41% from the correction bottom over the following three months and 17.03% over six months.
The January 2022 correction proved the exception. The Nasdaq lost another 18.3% over the next six months and was down 24.3% a year later.
The selling was triggered by Democrats sweeping the House and Senate in Tuesday's midterm elections and winning significant gains in Texas. Gina Hinojosa won the race for governor after campaigning on an immediate moratorium for data center development. Investors are weighing whether tighter state-level restrictions on data centers could slow construction and pressure companies tied to artificial intelligence.
Frank Cappelleri, founder of CappThesis, analyzed past midterm election cycles and found the Nasdaq was higher 12 months after the election in all but one of 13 midterm cycles since 1974. He noted the path can be volatile. In 2018, the Nasdaq rallied the day after Democrats won the House, then faced a sharp December sell-off, but ended about 15% higher a year after the election.
Chip stocks fell sharply Thursday. The iShares Semiconductor ETF (SOXX) dropped 12% in its worst day since March 2020.