Well, that escalated quickly. Wednesday’s reassuring post-midterm election rally on Wall Street ended faster than a New York minute.

It was replaced on Thursday with a seismic tech selloff that caused the Nasdaq Composite to dip 5.5% into correction territory. Roughly $2.5 trillion in market value, $1 trillion of it concentrated in the Magnificent 7 tech behemoths, evaporated like nail polish remover. Investors began pricing in plans by victorious Democratic politicians to rein in the artificial intelligence buildout that is powering the market’s favorite trade and rotating their portfolios accordingly. Some analysts think they may have gone too far.

‘Blood in the Street’

“We are seeing a complete capitulation-level event in tech stocks today,” said Saxo Bank UK Investor Strategist Neil Wilson on Thursday. “Looks like total degrossing and some leveraged funds may well be blowing up. The blood is in the streets, folks.” Shares in neocloud firms, chipmakers, power providers and data center suppliers all took brutal tumbles. Almighty Nvidia, for example, closed down 9.2%, erasing almost $450 billion from its market capitalization. The iShares Semiconductor ETF dropped more than 12%.

It should be said that the pressure on the AI buildout isn’t new. Even before the midterms, rising interest rates and the strain of funding massive capital expenditure plans had spooked investors. Public sentiment had soured, too, with more than half of Americans viewing data centers as bad for the environment and roughly half considering them bad for household energy costs and quality of life, according to Pew. A tally by Redbud Consulting shows voters passed 44 measures to restrict data centers in communities around the country on Tuesday, compared to just one pro data center measure. The backlash has bipartisan appeal, too. Notably, Republican Governors Greg Abbott of Texas and Ron DeSantis of Florida both paused permits for new data centers in their states in recent months. Democrats, including Abbott’s incoming successor Gina Hinojosa, promised to be more aggressive.

“The fear is a total momentum unwind as Democrats pace the frontier and kybosh data center buildout,” said Saxo’s Wilson. Still, he thinks Thursday’s selloff may have gone too far: “This looks totally overdone, but the nature of sell-everything of this market means we need to look for some stability first.” Others agree:

• “Outright moratoriums remain unlikely to become mainstream,” wrote Coco Zhang, vice president of ESG Research at ING, adding any curbs are likely to be temporary in order to allow states to develop data center policies. “Federal action is more likely to focus on affordability by protecting electricity customers from higher costs and formalizing data centers’ responsibility to help fund grid and energy infrastructure upgrades.”
• Ultimately, ING thinks “tighter AI and data center regulation is unlikely to fundamentally alter the industry’s growth trajectory.” Yorkville Ives Senior Managing Director Dan Ives, one of Wall Street’s most influential technology analysts, tweeted a similar view: “We remain bullish on the AI Revolution buildout … which is still gonna happen in the US just at a slower pace.”

Fear, Indexed: A slower pace of AI buildout will, however, likely mean selling by funds and strategies. Wall Street’s best-known gauge of market anxiety, the CBOE Volatility Index, rose nearly 70% in its biggest jump in 18 months. That reflects options traders who, at the very least, think markets could prove bumpy for at least the next 30 days.

For the last few years, investors have piled into tech stocks, hoping to benefit from the AI buildout. This year, as tech growth has slowed, investors are going more old school.

Dividend ETFs, which regularly pay out investors, have raked in nearly $51 billion so far in 2026, compared to about $30 billion in 2025 and about $21 billion the year prior, according to Morningstar data. But the reason for the flows differs between dividend growth funds and high-yield dividend funds.

“Dividend funds tend to be a little bit more value leaning, so it might be a way to diversify away from a lot of the big AI stocks and tech stocks that have been dominating markets for a while now,” said Dan Sotiroff, associate director of ETF and passive strategies research at Morningstar. He added some of these flows are simply investors swapping mutual funds for ETFs, a record trend this year. But for high-yield strategies, which often hold a lot of energy stocks, the story is about performance. “A lot of the energy companies that have been doing really well have been pushing a lot of those high dividend yield ETFs.”

A Means to a (Divid)End

October was the worst month for the Nasdaq since March 2025, with the index falling more than 5%. “This might be the first year where a lot of the market concentration isn’t necessarily working for investors anymore,” said Nick Puncer, managing director at Bahl & Gaynor. “I think an appropriate response to that is trying to identify investments that offer more evidence today that they are growing and doing it in a way that produces cash.”

Flows have gone to both high-yield and growth funds:

• The Schwab US Dividend Equity ETF (SCHD) pulled in the most by a wide margin, raking in $25 billion in net flows, according to Morningstar data.
• The Vanguard High Dividend Yield ETF (VYM) came in second, attracting $4.4 billion, followed by the First Trust Rising Dividend Achievers ETF (RDVY) with about $3.6 billion.

But the popularity is more than a movement away from tech. For dividend growth funds, increased investor attention is about both price and fundamentals, said Simeon Hyman, head of investment strategy at ProShares. “These dividend growers are selling at a substantial discount to the broader market, and that’s an unusual situation,” he said. “If you look several quarters ago, you would have seen higher year-over-year earnings growth from the S&P 500, but now you’re seeing it from the classic dividend growers as well.”

Pull Out Your Reading Glasses: Investors looking to dividend funds for diversification need to be careful to read the fine print, Puncer said. “Look at the portfolio underneath the surface, because you might be surprised that many dividend strategies out there, active or passive, might look a lot like the S&P 500, and so you’re not truly getting diversification from those,” he said. “This is maybe the first wave of a market transition where investors have a lot more choice about how they own a dividend strategy, and that’s a good thing for investors.”

More investors want an invite to the private asset party.

Over half of investors in 401(k)s and similar workplace retirement plans say they’d put money in private assets if offered, up from 45% in 2025 and 36% in 2024, according to a recent Schroders survey.

Private investments are increasingly making their way into everyday investors’ portfolios as new products offer access with lower minimums and more liquidity. While less than 1% of the $14 trillion in assets in defined contribution plans are in private assets, the Bipartisan Policy Center found, that’s likely to change as plan providers like Empower and State Street look for new ways to introduce private assets to retirement savers.

“It’s hard to argue against providing access,” said Jean-Pierre Aubry, associate director of retirement plans and finance at the Center for Retirement Research at Boston College. “But of course, it comes with responsibility.”

Worth It?

Private assets come with potentially high fees, opaque valuations and illiquidity. And, they may not actually provide investors with what they’re looking for:

• Seventy-seven percent of plan participants say private assets offer an opportunity for greater investment return, and 78% said private assets enhance a 401(k)’s diversification, Schroders found.
• But the dispersion of performance for private assets is really wide, Aubry said. With public equities, the difference between the best active manager of a fund and the worst active manager of a fund is not that large. “Private assets are a whole different ballgame,” Aubry added. “Once you get out of the top quartile, it’s a bloodbath. It’s really hard to pick winners, and if you don’t pick winners, you end up with a real loser.”
• He’s skeptical about the diversification benefits, too. “In a place like America, where we have a very deep and broad public market, the idea that there’s like a whole diversified sector out there that can only be accessed through private assets is really hard for me to imagine.”

Looking Ahead. It takes a lot for an investment to make it into a retirement plan, since a plan fiduciary needs to give it the go ahead. “401(k) assets are probably among the most carefully considered assets available in the world,” said Josh Lichtenstein, head of the ERISA fiduciary practice at law firm Ropes & Gray. The reason we haven’t seen them in retirement plans on a wider scale is that fiduciaries have been worried about being sued, he said. But the Department of Labor has a proposed rule which should be finalized this year or early next designed to give those fiduciaries confidence that as long as they follow an appropriate process and can show their work, it should be easier for them to win those lawsuits, he said. “I think there’s genuine relief on the way there.”