The Nasdaq Composite fell into correction territory on Thursday, dropping more than 5% and closing more than 11% below last month's record. Any decline greater than 10% marks a correction.
Historical data from 10 correction episodes over the past decade shows mixed near-term outcomes. Selloffs in 2025, 2022, 2020, and 2018 were followed by further rough selling 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, according to the report.
The January 2022 correction was an outlier. The Nasdaq lost another 18.3% over the next six months and was down 24.3% a year later.
Investors cited Democrats sweeping the House and Senate in Tuesday's midterm elections as the catalyst. Gina Hinojosa won the Texas gubernatorial race after campaigning on an immediate moratorium for data center development. Investors are weighing whether tighter state-level restrictions could slow data center construction and pressure companies tied to artificial intelligence.
Chip stocks tumbled Thursday. The iShares Semiconductor ETF (SOXX) fell 12%, marking its worst day since March 2020.
Frank Cappelleri, founder of CappThesis, examined 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. "The caveat is that the path can be a volatile one," he said. He noted that in 2018, the Nasdaq rallied the day after Democrats won the House, though a sharp December sell-off followed before the index ended about 15% higher a year after the election.