Street’s biggest trading desks spent weeks saying the stock-market rally would resume once the election was done. On Thursday, that call backfired spectacularly.

Trading desks at JPMorgan Chase & Co., Citadel Securities and UBS Securities had said the midterm vote would be a clearing event for markets that had been jittery going into the vote. With plenty of cash on the sidelines, investors would be inclined to rebuild their positions, the trading desks said.

Of course, one day doesn’t make a trend in the stock market and the trading desks’ bullish views may still materialize. Thursday’s selloff highlights the traps of trying to estimate the stock market’s direction, even for Wall Street’s pros. US equities advanced on Wednesday before anxiety around the artificial intelligence trade after Democrats swept the elections wiped out $2.3 trillion from the Nasdaq 100 Index the next day. The S&P 500 plunged 4.4%, with every sector finishing the day in the red.

On Wednesday, Goldman Sachs Group Inc.’s equities trading desk had one of its busiest sessions of the year, according to John Flood, the bank’s head of Americas equities execution services. Thursday was “the exact opposite,” he wrote in a note to clients. “Our phones are exploding with asks for color. Unfortunately we aren’t seeing much.”Earlier: Goldman Traders Say Phones ‘Are Exploding’ as AI Selloff Worsens The long-only investment community was “frozen” again, he said in the note.

Investors had aggressively reduced stock exposure ahead of the midterms and were caught off guard by Wednesday’s rally, he said. Hedge funds were now selling some of the AI hyperscaler stocks they had bought the day before.

The bullish calls ahead of the vote had been tied to the idea that investors were positioned so defensively heading into the vote that the removal of election uncertainty could encourage them to rebuild exposure. Hedge funds, for instance, cut equity risk in October at a pace not seen since March, according to data from Goldman’s Prime Services desk.

Citadel Securities’ Scott Rubner, head of equity and equity derivatives strategy, said the election could help clear the way for a year-end advance. “With the election behind us and volatility potentially normalizing, there is considerable capacity for investors to rebuild risk,” Rubner wrote in a note to clients on Wednesday. “With uncertainty fading and several of the market’s largest buyers returning, we believe the path of least resistance for US equities is higher into year-end,” he said.

Futures on the S&P 500 gained 0.1% at 8:37 p.m. in New York, while contracts on the Nasdaq 100 jumped 0.7%.

UBS Securities’ Davide Montoni similarly argued that the vote could provide an upside catalyst after a volatile stretch for technology stocks. “Hyperscaler earnings clearly did not provide the all-clear investors were hoping for, but getting through the election could be the catalyst that unlocks a year-end squeeze,” he said.

JPMorgan’s trading desk also expected technology stocks to rebound and the rally to broaden beyond a narrow group of megacap stocks. The bank’s US Market Intelligence team said it was tactically bullish, arguing that the recent tech selloff had created an opportunity for a near-term rebound. But the election did little to resolve the other forces weighing on stocks.

Barclays Plc’s global head of equities tactical strategies Alex Altmann was one of few skeptics across Wall Street’s major trading desks. He had warned that the midterms were unlikely to be the clearing event investors were looking for, with the biggest pressures on equities, such as AI’s payoff and the cost of financing its buildout, wouldn’t be resolved by the vote.

The scale of Thursday’s decline was amplified by the so-called systematic strategies, many of which follow the stock market direction rather than fundamental drivers.

Volatility-control funds could reduce equity exposure by about 30 percentage points, one of the largest one-day adjustments since the Covid-era market turmoil, Barclays Equities Tactical Strategies models show. Those funds could sell roughly $135 billion in US equity futures over the next 24 to 48 hours, the models show.

“We expect this to continue tomorrow as unwinds spread through the real money channels of retail and Long Only investors,” Altmann added.

ETF rebalancing added to the pressure. Thursday was estimated to be the largest-ever levered ETF rebalance for sale, Barclays noted.

Retail investors, another source of demand during previous market dips, were reluctant to dive in. Retail traders were on track for their largest day of selling in individual stocks since the Covid-19 pandemic, Vanda Research said. As of 3 p.m. in New York on Thursday, they had sold a net $338 million of single stocks, according to the firm.