Nasdaq Falls 2.6% as AI Spending Fears Unwind Wednesday's Rally

Wednesday's rally lasted one day. The stocks that carried it — SpaceX, Super Micro, the chip complex, the two companies that reported after Wednesday's bell — gave the gains back on Thursday, and the selling was narrow enough that most of the S&P 500 actually rose.

The Nasdaq Composite fell 2.6 percent to close at 26,008.86 on Thursday, October 22, 2026, its steepest daily drop since June, the S&P 500 fell 1.19 percent to 7,664.77, and the Dow Jones Industrial Average rose 0.03 percent to 52,873.60 after turning positive in the final minutes. The headline indexes hid an unusually split tape: the S&P 500's information-technology sector lost 3 percent, yet far more stocks in the index advanced than fell, the equal-weight version of the S&P 500 gained 0.7 percent, and small caps were little changed, edging up about 0.1 percent. The S&P 500's three-day gain streak ended, but the damage sat almost entirely in the names that had been carrying the market.

Wednesday's winners gave it all back

Meta Platforms fell 6.98 percent to close at $648.85 even though its third-quarter revenue beat expectations: investors sold the first cash outflow in more than a decade, driven by artificial-intelligence spending, and a plan to issue non-voting shares in a two-for-one split to raise more capital for that spending. Tesla fell 3.08 percent to $374.58 after cutting its 2026 capital-spending forecast from about $25 billion to about $20 billion; the quarter's free cash flow was unexpectedly positive, but Reuters also reported that some Tesla insiders are concerned Elon Musk's comments about a possible SpaceX merger could invite shareholder scrutiny. The two stocks that led Wednesday reversed hardest: SpaceX fell 9.14 percent to $144.75 a day after rising 7.79 percent, and Super Micro Computer fell 5.20 percent to $33.72 a day after rising 9.55 percent.

The chip complex cracked

Lam Research fell 11.76 percent to $230.15, the worst of the complex, after management said near-term supply constraints held back its December-quarter outlook. Advanced Micro Devices fell 8.10 percent to $507.93 and Nvidia fell 4.40 percent to $212.21. The broader semiconductor fund fell roughly 6.5 percent and the memory fund dropped 7 percent, and the Philadelphia semiconductor index has now lost about one-fourth of its value since its record closing high on June 22. Nvidia chief executive Jensen Huang, speaking Thursday, said demand is off the charts but pointed to a scarcity of capital to fund the buildout — the working capital in the middle is what is missing — which landed on a market already asking who pays for the spending race.

Defensives, housing and a steady economy got paid

The money went to the boring end of the market and to rate relief. Spotify rose 11.10 percent to $583.66 after its fourth-quarter profit forecast topped estimates, Lockheed Martin rose 6.96 percent to $589.91 on a beat and a raised outlook, Procter & Gamble rose 5.58 percent to $165.59 after beating estimates even while warning that rising cost pressures will take an increasing bite, and Dow Inc rose 4.71 percent to $31.81 on an operating earnings beat. CSX surged 7 percent as analysts raised price targets after its results, and D.R. Horton jumped 6.2 percent after the Treasury proposed rules barring large institutional investors from buying single-family homes starting in January 2027, on a day when falling yields helped every rate-sensitive name. The economy gave the rotation no reason to stop: initial jobless claims fell to 194,000, near multi-decade lows, the Conference Board's leading index was unchanged in September, and 83 percent of the 111 S&P 500 companies that have reported this season have beaten expectations.

Oil jumped, and bonds rallied anyway

The day's strangest pairing was in commodities and rates. Brent crude settled up 4 percent at $113.17 a barrel, a more-than-five-month high, and West Texas Intermediate rose 2.4 percent to $99.47 after Houthi attacks in Saudi Arabia stoked supply fears and Saudi Aramco told staff to evacuate its headquarters in Dhahran; the United States also ordered non-emergency personnel and families to leave Saudi Arabia. Oil up that hard would normally push yields higher on inflation fear. Instead the 10-year Treasury yield fell 19 basis points to close at 4.95 percent, its biggest daily drop since March 23 and its first close below 5 percent in about a month, as investors sought the safety of government bonds while stocks fell. The broken oil-yield correlation was the day's clearest cross-asset signal: the safety bid, for once, outbid the inflation bid.

The verdicts keep coming. Newmont, Western Digital and Deckers were due to report after Thursday's close, Friday brings the flash manufacturing and services surveys at 9:45 AM ET and final Michigan sentiment at 10:00 AM ET, and the Federal Reserve meets October 27-28 with its officials in their pre-meeting blackout — markets see an October move as unlikely but still price another 25 basis point increase before year-end. Next week brings the Alphabet, Microsoft and Amazon reports, the next verdicts on the AI spending that Thursday's market just voted against.