November Market Insights: Thursday’s Selloff & the Bubble Question
What Thursday's Selloff Really Told Us
Thursday was a tough one for markets. The S&P 500 fell 4.4%, its worst day since the tariff shock in April 2025, and the Nasdaq slid into correction territory with chip stocks doing most of the damage.
Days like that bring the word bubble right back into the conversation, and it's a close second to transitory on my list of least favorite market words. After a few big years it's a fair question, though, and Thursday had a pretty clear cause that says a lot about where the pressure really sits.
Two Kinds of Bubbles
When people say bubble, they usually mean one of two things. A stock's price comes down to what a company earns and what investors will pay for each dollar of those earnings, and a bubble can build up on either side. A valuation bubble is when the price people pay runs way ahead of reality, like the dot-com era. An earnings bubble is sneakier. The price looks reasonable because profits are high, but those profits lean on something that may not last.
Solid Earnings, More Pressure
Earnings have been the good news all year. Heading into this week, stocks were trading at a pretty normal price for the profits companies are expected to earn next year, and a big share of that growth has come from chip-makers riding the AI spending wave. Their profits more than doubled from a year ago, which is great, but growth that fast is also the hardest kind to keep up.
Those earnings have been under more pressure lately, and a big piece of it is the 10-year Treasury yield, which pushed above 5% this fall after sitting near 4% a year ago. Higher yields make it more expensive for companies to borrow for data centers, many of which are being built with debt, and they make a dollar of future profit worth less today. Chip stocks were already sliding in October on rate worries and questions about overspending, and Tuesday's midterms piled on.
The Midterms Added Fuel
Tuesday's midterms gave Democrats control of both the House and Senate, along with governor's races in Texas and Ohio, where the winners have talked about pausing new data center construction. Voters sent a similar message on local ballot measures, turning down data center projects in nearly every case. Markets took it in stride on Wednesday, then changed their mind on Thursday.
Texas matters most — it holds roughly a quarter of the planned U.S. data center build-out — so investors started pricing in a slower, more expensive road for AI infrastructure.
What Thursday Told Us
Data centers are where the AI money gets spent. Every dollar a big tech company puts into one becomes revenue for the companies selling the chips, memory, and power equipment inside it, so if permits slow down, that spending gets pushed out and those profits go with it. You could see it in how lopsided the selling was.
Chips ran hot, then gave it all back. The average stock barely moved.
Chip stocks are now down about 22% since early August, after being up 16% at their October high, while the average S&P 500 stock is right about where it started. The market marked down one hot slice of earnings, and the rest of the market held up just fine.
Delay or Derail?
JPMorgan doesn't expect a material change to 2027 AI spending and thinks tighter rules are more likely to bite in 2028 and beyond. Congress can't do much on its own with a presidential veto in play either, so most of this will play out state by state.
There's also a case that slowing down helps. The big tech companies have been pouring cash into data centers, and if they spend a little less, more of that money can fall to the bottom line. We've been waiting for AI to show up in the profits of the companies using it, and a more measured build could be part of how we get there.
So Where Does This Leave Us
Our bottom line is that Thursday looked a lot more like a reset in one corner of the market than the pop everyone's been bracing for, even if moves this sharp can take a little while to settle. The bright spot is earnings — ten of eleven sectors grew profits last quarter, analysts still expect double-digit growth next year, and there's plenty of room for the rest of the market to pick up the slack if AI's builders take a breather.
We'll be watching Nvidia's earnings on November 17, how quickly the new governors move on permits, and what the new Congress takes up when it convenes in January. If this turns into the moment the rally starts to broaden out, we'd call that a healthy step. We'll keep a close eye on it so you don't have to.
As always, reach out with any questions.
This commentary is for informational purposes only and is not a recommendation to buy or sell any security. Past performance does not guarantee future results.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bouchey Financial Group, Ltd. [“Bouchey Financial”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, no portion of this discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bouchey Financial. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Neither Bouchey Financial’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if Bouchey Financial is engaged, or continues to be engaged, to provide investment advisory services. Bouchey Financial is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bouchey Financial’s current written disclosure Brochure and Form CRS discussing our advisory services and fees is available for review upon request or at www.bouchey.com. Please Note: Bouchey Financial does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bouchey Financial’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bouchey Financial client, please contact Bouchey Financial, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.