Stock Market Today, Oct. 16: Tech Stocks Plunge as AI Software Valuations Reverse

AI software stocks reversed sharply on October 16, 2026, dragging the Nasdaq Composite down 2.15% and the S&P 500 down 1.07%. The Dow Jones Industrial Average slipped just 0.34%, a gap that points to the damage concentrating in tech rather than spreading across the broader market.

The catalyst, per Goldman Sachs (GS): hedge funds sold AI stocks at the second-fastest pace in more than a year. That selling triggered a tactical rotation, with money leaving smaller AI names and moving toward larger, steadier companies and defensive stocks.

The index spread tells the story. The Nasdaq's decline ran roughly double the S&P 500's and more than six times the Dow's. Interpretation: the Nasdaq's heavier exposure to AI-focused software is the likeliest driver of that gap, though the source does not break out individual stock moves.

The Goldman Sachs data frames this as a positioning unwind rather than a market-wide selloff. Hedge fund de-risking at the second-fastest clip in over a year suggests crowded AI exposure is being trimmed, and the rotation toward defensives indicates capital is staying in equities while changing character.