Sell First, Ask Questions Later

• Thursday's 5.5% drop left the Nasdaq down 11.9% in a month.

• Since 1979, 10%+ monthly drops have led to above-average returns.

• Like the 1998 ruble scare, this selloff looks fear-driven.

Investors sell the headline. Then they buy the details…

Wall Street hates uncertainty. When institutional investors get nervous, they tend to sell first and ask questions later. But as the details emerge, that's when they start wading back in. And right now, Tuesday's election outcome has tech investors squarely in sell-first mode.

Step back, though, and the bigger picture hasn't changed. The Nasdaq's path since the launch of ChatGPT isn't much different from what we saw in the 1990s after the Netscape browser arrived. And the gauge is going through a similar pullback at this point in the cycle as it did back then.

But as you can see, that wasn't the only bump along the way. In August 1998, Russia devalued the ruble and defaulted on its debt, pushing hedge fund Long-Term Capital Management to the brink. Investors feared lending markets would seize up and choke off growth, and the Nasdaq fell 29.5% from its July high to its October low. Then the Fed cut rates three times, credit thawed, and the index rallied 256% to its March 2000 peak. Today’s worry is whether the AI buildout gets permission and, by extension, funding. Different trigger, same playbook..

That's why Thursday's 5.5% drop deserves some perspective. It was the Nasdaq's first single-day loss of 5% or more since April 2025, and it left the gauge 11.9% below its Oct. 6 record close. We've seen plenty of moves like this since 1979, and they've tended to produce above-average returns. My view: this is a fear-driven pullback inside an intact cycle, and the coming 12 to 24 months should reward patient investors.

But don't take my word for it, let's look at what the data's telling us...

Since the end of 1979, the Nasdaq has fallen 10% or more over a 30-day stretch in 95 separate episodes. As the table below shows, average and median returns after those drops beat the index's typical returns at every horizon. And the gap widens with time. Two years out, the average gain was 35.7%, versus 29.0% for all days.

Nasdaq Composite: Returns After a 10%+ Decline in 30 Days (1979 - 2026):

Source: Nasdaq; Reproduced by BentPine Capital, LLC

Here's the twist. The hit rate after these drops is lower than normal. Only 62% of episodes were higher six months later, versus 72% for all days. That's because 30 of the 95 episodes came during the 2000-2002 dot-com bust, when earnings collapsed and the selling didn't stop.

Strip those out, and the picture changes. Some 81% of the remaining episodes were higher six months later, 88% after a year and 97% after two years. The average two-year gain jumps to 59.6%. And of the 31 episodes since 2009 that have reached their two-year mark, every single one finished higher.

That's the real story. The declines that turned into lasting losses were the ones where the fundamentals broke. The ones driven by headlines became buying opportunities. The textbook case is 1998: the four episodes that year produced an average gain of 48.6% six months later and 72.2% a year later.

So which kind of decline is this? Start with the headline that sparked the selloff. Texas flipped from a Republican governor to a Democrat. The fear is that the state at the center of the AI buildout could shut down data center construction. Governor-elect Gina Hinojosa ran on a pledge to freeze data center approvals. But a campaign pledge isn't a construction stop.

As investor Gavin Baker of Atreides Management pointed out, Hinojosa has said that all currently permitted data centers in the state will be allowed to finish construction. That should cover all of the 2027 buildout and most of 2028. And Texas has already had a pause on new approvals in place since August. In other words, the fundamentals behind the AI buildout haven't broken.

Right now, the environment feels uncertain because of the political rhetoric. But Hinojosa’s comments show the fog is already lifting. Clarity like this is exactly what brings institutional money back off the sidelines.

As the smoke clears, investors should get back to work focusing on fundamentals instead of headline drama. That should underpin a steady rally in technology stocks and the Nasdaq Composite.

Five Stories Moving the Market:

Pain has cascaded across the hedge fund industry in October, as a broad tech selloff collided with a shock election in Brazil and violent protests in France, bruising many of the world’s sharpest money managers – Bloomberg. (Why you should care – Losses across strategies are forcing funds to unwind crowded trades quickly; that kind of selling hits the most widely held stocks whether or not their fundamentals have changed)

Federal Reserve Bank of Cleveland President Beth Hammack made a case for modest and steady interest rate increases to tackle above-target inflation; Hammack said she would prefer to get to the central bank’s inflation target by making a series of frequent smaller adjustments – Reuters. (Why you should acre – Hammack is the most hawkish policymaker on the Federal Open Market Committee this year)

Major investors are increasingly skeptical Anthropic’s blockbuster initial public offering can proceed at the expected valuation of $1.5 trillion after a deep market selloff tied to the unwinding of AI-related bets, according to people familiar with the matter; Anthropic is aiming to stage the IPO the week before Thanksgiving and has been expected to raise up to $100 billion in an offering – WSJ. (Why you should care – a smaller-than-expected raise would leave Anthropic with less cash to spend on computing power)

Alphabet's Google will invest $17 billion to build its first data center in Wyoming, pushing ahead with a major AI infrastructure ‌investment as political resistance to data center expansion grows following the US midterm elections - Reuters. (Why you should care - t he biggest AI spenders aren’t pulling back. They’re moving projects to friendlier states, which keeps the capital flowing to chip and equipment makers even as some states push back)

About 40% of pending data center capacity in the U.S. is planned to be built in states where newly elected governors have promised to stop or pause such construction, according to data from market intelligence firm Cleanview; in addition, 46 local ballot measures approved or on track to pass that also stall development, according to Bloomberg Economics – Bloomberg. (Why you should care - the risk falls on future projects, not those already being built; new projects are likely to move to data-center friendly states)

Economic Calendar:

Earnings: HUM, VST, MRNA

Germany - Industrial Production for September (2 a.m.)

Fed's Williams (New York, Voter) Speaks (4:30 a.m.)

Eurozone - Retail Sales for September (5 a.m.)

U.S. - Nonfarm Payrolls for October (8:30 a.m.)

U.S. - Unemployment Rate for October (8:30 a.m.)

U.S. - Average Hourly Earnings for October (8:30 a.m.)

Canada - Employment Change for October (8:30 a.m.)

Fed's Musalem (St. Louis, Non-Voter) Speaks (9:10 a.m.)

U.S. - University of Michigan Consumer Sentiment (Preliminary) for November (10 a.m.)

Fed's Bowman (Board, Vice Chair for Supervision) Speaks (12:15 p.m.)

U.S. - Baker Hughes Rig Count (1 p.m.)

U.S. - Consumer Credit for September (3 p.m.)

U.S. - CFTC's Commitment of Traders Report (3:30 p.m.)

Fed Releases Balance Sheet Updates on Commercial Banks (4:15 p.m.)