Wall Street's tumultuous midterm election week kicked off with a celebration among investors.

On Wednesday, stocks soared after Democrats swept both chambers of Congress. The Dow (^DJI) surged more than 1,500 points. The S&P 500 (^GSPC) rallied nearly 2%.

And in less than 24 hours, stocks reversed course, plunging Thursday as Wall Street and Main Street investors alike ditched artificial intelligence winners and chip stocks, sending the tech-heavy Nasdaq Composite (^IXIC) into correction territory.

The extraordinary reversal marked just the latest whipsaw in a year of wild swings, with the market's best expectation of future volatility, the VIX (^VIX), spiking to its highest level since President Trump extended the deadline for the Iran war in late March.

As the election results rolled in, Steve Sosnick, chief strategist at Interactive Brokers, was glued to his television, flipping between CNN, Fox, MSNBC, and Bloomberg while watching stock futures slip. When Sosnick went to bed, futures were still down roughly 1%.

Democrats had won control of both the House and Senate, resolving one major source of uncertainty for markets, while introducing a specific complication to the country's artificial intelligence investment boom.

States where newly elected governors have promised to stop or pause data center construction account for an estimated 45% of planned US data center capacity, according to Goldman Sachs.

In Texas, where more than half of the country's data center capacity is planned for construction, stakes were especially high. Democrat Gina Hinojosa had just won the race to become governor after promising a moratorium on new data center approvals.

The shift caught the attention of one of the world's most prominent business titans.

"Data centers in space look pretty appealing right now," Elon Musk posted on X early Wednesday.

Supporters in Austin celebrate Democratic gubernatorial candidate Gina Hinojosa's win after Texas Gov. Greg Abbott conceded the race during the US midterm elections on Nov. 3, 2026. (Reuters/Kaylee Greenlee) · Reuters / REUTERS

By Wednesday morning, Wall Street was seeing silver linings in the blue wave.

Stocks took off. The Dow jumped 3%, its best day in months. The S&P 500 rose 1.6%, and the Nasdaq gained 1.4%.

Investors appeared to welcome the prospect of a divided government, potentially limiting some of President Trump's agenda. Oil prices (CL=F, BZ=F) also plunged, helping ease inflation concerns.

And the removal of election uncertainty ushered in a sharp drop in the VIX. That drop may have encouraged volatility-sensitive trading strategies to buy stocks, adding more upward pressure to the rally, according to Sosnick. As prices climbed, more investors piled in.

But beneath the rally, trouble was brewing.