By Xiaobing
On November 5, U.S. stocks crashed, marking their worst November since 2008.
The Dow plunged 1,833 points, or 3.44%; the S&P 500 sank 4.36%, and the Nasdaq fell 5.52%. The market lost $3 trillion in value in a single day. It was the worst day since the pandemic panic of March 2020, and the VIX volatility index surged above 28.
This sell-off was strikingly divided: as the AI narrative collapsed and hedge funds rushed for the exits, Berkshire hit an all-time high and Walmart surged against the trend.
The same market, with two completely different outcomes.
This divide points to a colder reality: AI is creating a K-shaped divergence, and it could last a decade.
Panic Selling: Hedge Funds Head for the Exits
There’s an old Wall Street saying: when you don’t know who’s selling, it means everyone is selling.
Goldman Sachs’ Prime Brokerage data shows that hedge funds have been net sellers of U.S. stocks for six straight weeks. The amount sold over the past two trading days was the highest in Goldman’s records. “Friday was one of the most unsettling trading days in recent years,” Goldman trader Cullen Morgan wrote in a report to clients over the weekend.
After the S&P 500 fell below the key technical level of 6,725, trend-following hedge fund models (CTAs) generated sell signals. Goldman estimates that CTAs alone could sell nearly $40 billion in stocks over the coming week. If the decline deepens, total selling pressure could reach $65 billion.
Even before the CTAs, tech stocks were already among the hardest hit.
Goldman data shows that hedge funds are dumping tech stocks at the fastest pace in a decade, with semiconductors bearing the brunt. Even so, tech stocks still account for a hefty 23.5% of positions in Goldman’s global Prime Brokerage book, putting them at the 90th percentile of the past five years. After all that frenzied selling, hedge funds still own too many tech stocks. The sell-off is far from over.
At the individual fund level, Walleye Capital, which manages $17 billion in assets, lost 5.9% in October—its worst performance since 2020—and was forced into a structural restructuring.
Millennium withdrew $1.5 billion from external managers.
Lone Pine was reportedly at risk of a full liquidation. The most ironic case was the AI-focused Situational Awareness fund, which had already lost 67% earlier this year before being acquired at a discount by Citadel.
Trader Noel Smith put it bluntly: “The market looks like a liquidation.”
This is a structural panic across the hedge fund industry. One fund is forced to sell, pushing prices down and triggering another fund’s stop-losses. That fund’s selling then drives prices lower, triggering even more stop-losses.
It’s like a hotel catching fire: one person starts running, then everyone runs, and each person running makes the fire burn even fiercer.
The Trigger: Democrats’ “Data Center Ban”
The trigger for the plunge came from Washington.
On November 3, the U.S. midterm elections concluded with Democrats sweeping both chambers of Congress. The result itself wasn’t surprising, but the market underestimated one thing: Democratic opposition to AI infrastructure was deeper, broader, and more actionable than expected.
Senator Sanders sent a clear signal on election night: “There should be a nationwide moratorium on data centers, effective immediately.”
The more consequential shift came at the state level. Texas’s newly elected Democratic governor, Hinojosa, pledged to “pause all data center approvals.” Texas is one of the largest data center markets in the country, and new Democratic governors in Georgia, Ohio, and Nevada made similar pledges.
Goldman offered a key figure: 45% of U.S. data center capacity under construction or in the planning stages is located in states with Democratic governors who support a moratorium. Meanwhile, around 40 local ballot measures restricting data centers have passed.
45%. That means the core chain of reasoning that has supported U.S. stocks for the past two years—“AI needs computing power, computing power needs data centers, and data centers need capital spending”—has been severed in the middle.
Representative Ansari went further, calling for a “pause on advanced AI development” and a ban on ASI (artificial superintelligence).
Such an extreme position was enough to spook Wall Street.
Musk: The Biggest Gambler, the Biggest Loser
No one bled more than Musk in this crash.
Tesla plunged 11% on November 5, after falling 3.3% the day before. SpaceX shares plunged 9%, dropping below the $135 IPO price. Musk personally lost about $74 billion in net worth on the day of the crash.
Musk poured $366 million into political donations during this midterm election cycle (a whopping $276 million of it since July alone), making him the largest known individual political donor. But the Republican candidates he backed were almost entirely defeated.
Even worse, the threat of data center bans following the Democrats’ victory struck at his most valuable assets: Tesla’s AI and autonomous-driving narrative, and SpaceX’s planned space-based data center project.
After Democrats won control of both the Senate and the House, Musk deleted posts on his own social media platform, X, that had urged voters to support Republicans—a rare retreat.
Berkshire and Walmart: The Other Side of the Divide
While the bloodshed in tech stocks was still fresh, another world was already celebrating.
Berkshire Hathaway Class A shares hit a record high of $821,931. On a day when AI stocks crashed, this “most boring stock” became the market’s most sought-after asset.
The reason is simple: Berkshire has $365 billion in cash reserves.
Everyone is debating whether AI is a bubble, hedge funds are being forced to sell their best assets at the worst possible time, and Buffett (now succeeded at the helm by Greg Abel) is sitting on a mountain of cash, waiting to scoop up bargains.
Money poured out of tech stocks and into Berkshire, making it the ideal vehicle for an “anti-AI trade.”
Think about it: the money most optimistic about the future is flowing into a company known for “not touching what it doesn’t understand.”
Walmart’s story is even more interesting.
Walmart shares rose 13.9% in October, their best monthly performance since 2014. On November 5, the day of the market plunge, Walmart defied the trend and gained 5.6%, outperforming the S&P 500 by nearly 13 percentage points. The consumer staples ETF (XLP) is up 13.5% year to date.
Walmart hasn’t gotten better. What’s changed is the consumer: people are getting poorer, or feel as though they are.
Higher-income households are “trading down,” switching from Whole Foods to Walmart.
The K-Shaped Divide
The AI stock crash, hedge fund panic selling, Berkshire’s rise to glory, Walmart’s surge, and long lines at McDonald’s may seem disconnected. In fact, they all point to the same underlying dynamic: a K-shaped economy.
According to the Oxford Economics Institute, AI has indeed driven household wealth growth of more than 7%, but the gains are highly concentrated in the hands of a few. One of the starkest data points from Q1 2026: AI-related economies grew 31%, while non-AI economies grew 0.1%.
Societe Generale put it plainly: the returns from AI ultimately flow to three groups—those who own computing power, those who own data, and those who own models. For everyone else, AI isn’t an opportunity; it’s a cost.
BlackRock CEO Larry Fink warned long ago that AI could exacerbate inequality.
The Oxford Economics Institute’s forecast is even more sobering: the K-shaped divide could persist until 2035.
This helps explain, in part, the split in where money flowed on the day of the plunge:
AI stocks were sold off as the market realized that policy could block AI growth, and that this growth hasn’t benefited the broader economy anyway. Defensive consumer stocks rose against the trend because, whatever the AI narrative, people still need to eat—and more and more people can afford only cheaper options.
The gains in Berkshire and Walmart are no cause for optimism. Their prosperity is built on most people trading down; Berkshire’s record high is built on demand for safe havens amid the ruins of tech stocks.
Their gains are a warning in themselves: smart money is pricing in a world where “AI hasn’t saved everyone.”
The K-shaped divide has shifted from a market phenomenon to the defining structure of our era.
This dynamic could persist for a long time.