Nasdaq drops into correction as Democrats sweep Congress and Texas governor race goes to Hinojosa

What happened this week

The Nasdaq slid into correction territory after a one day drop topping 5%, leaving it more than 11% off its high from last month. By common definition, a decline greater than 10% marks a correction, while 20% or more signals a bear market.

Semiconductors took the heaviest hit. The iShares Semiconductor ETF (SOXX) sank 12% Thursday, its worst session since the Covid-19 market shock in March 2020.

Why the market moved

The selloff followed midterm results that put Democrats in control of both chambers of Congress. In Texas, the party chalked up strong results as Gina Hinojosa captured the governor's race, campaigning on an immediate halt to data center construction. Investors are now weighing whether tighter state rules could slow data center buildouts and pressure stocks tied to the artificial intelligence trade.

What history signals now

Looking at 10 prior Nasdaq corrections over the past decade, the pullbacks that began in 2025, 2022, 2020 and 2018 saw another rough month afterward. Six months later, the index had returned to rallying in all but one of those instances: 2022.

From correction lows across those episodes, the Nasdaq has averaged a 9.41% rebound over the next three months and 17.03% over six. January 2022 was the tougher case, with the index falling another 18.3% over six months and sitting 24.3% lower a year later.

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The election pattern to watch

Chart analyst Frank Cappelleri of CappThesis reviewed 13 midterm cycles since 1974 and found the Nasdaq finished higher 12 months after the vote in all but one of them. As he put it, "The caveat is that the path can be a volatile one."

His 2018 example lines up: the index jumped on the day following Democrats winning the House, slid sharply in December, and was ultimately about 15% higher one year after the election.

The bottom line: near term volatility is on the table, especially with data center policy in focus for AI-linked names, while history leans toward rebounds taking shape over the following quarters.

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