Lessons from the US Stock Market Crash: Musk Bleeds, Buffett Crowned Legend, and K-Shaped Divergence

By Xiaobing

On November 5, U.S. stocks crashed, marking the worst November since 2008.

The Dow Jones Industrial Average plummeted 1,833 points, falling 3.44%, while the S&P 500 plunged 4.36% and the Nasdaq dropped 5.52%, wiping out $3 trillion in market capitalization in a single day. It was the worst day since the March 2020 pandemic panic, with the VIX fear index surging above 28.

This market sell-off revealed a stark divide: as the AI narrative crumbled and hedge funds stampeded for the exits, Berkshire Hathaway hit record highs and Walmart surged against the trend.

In the same market, two completely different endings played out.

This division points to a colder truth: AI is driving a K-shaped divergence, and it may last for a decade.

The Stampede: Hedge Funds Exit en Masse

There is an old Wall Street saying: When you don't know who is selling, it must be everyone.

Data from Goldman Sachs' Prime Brokerage shows that hedge funds have been net sellers of U.S. stocks for six consecutive weeks. The sell-off volume over the past two trading days reached the highest level recorded by Goldman Sachs. In a report sent to clients over the weekend, Goldman trader Cullen Morgan wrote: "Friday was one of the most unsettling trading days in recent years."

After the S&P 500 broke below the key technical support level of 6,725, models for trend-following hedge funds (CTAs) triggered sell signals. Goldman Sachs estimates that CTAs alone could dump nearly $40 billion in stocks over the next week. If the downward trend widens, total sell-off pressure could reach $65 billion.

Prior to the CTAs, technology stocks were already the hardest hit.

Goldman Sachs data shows that hedge funds are dumping tech stocks at the fastest pace in a decade, with the semiconductor sector taking the brunt. Even so, tech stocks still account for 23.5% of Goldman's global prime brokerage books, placing them in the 90th percentile over the past five years. After the frantic selling, hedge funds still hold too many tech stocks, meaning the sell-off is far from over.

At the fund level, Walleye Capital, which manages $17 billion in assets, posted a 5.9% loss in October, its worst performance since 2020, forcing it into structural restructuring.

Millennium Partners withdrew $1.5 billion in capital from external managers.

Lone Pine has reportedly faced risks of liquidation. The most ironic case is the AI-themed fund Situational Awareness, which had already lost 67% earlier this year before being acquired by Citadel at a discount.

Trader Noel Smith put it bluntly: "The tape looks like a liquidation."

This is a structural stampede within the hedge fund industry. When one fund is forced to sell, the price drop triggers stop-loss lines for another fund, whose subsequent selling drives prices down further and triggers even more stop-losses.

It is like a burning hotel: one person starts running, then everyone runs, and each person's movement only fuels the fire faster.

The Trigger: Democrats' "Data Center Ban"

The trigger for the crash came from Washington.

On November 3, the dust settled on the U.S. midterm elections, with Democrats sweeping control of both chambers of Congress. This outcome itself was not surprising, but markets underestimated one thing: Democrats' hostility toward AI infrastructure runs deeper, wider, and more effectively than imagined.

Sentator Sanders signaled early on election night: "A nationwide moratorium on data centers should be enacted now."

A more critical shift occurred at the state level. Newly elected Texas Democratic governor Hinojosa pledged to "pause all data center approvals." Texas is one of the largest data center markets in the country, and newly elected Democratic governors in Georgia, Ohio, and Nevada made similar promises.

Goldman Sachs provided a crucial statistic: 45% of the United States' under-construction and planned data center capacity is located in states led by Democratic governors who support the moratorium. Meanwhile, roughly 40 local referendums restricting data centers have already passed.

That 45% means the core logical chain that has supported U.S. stocks over the past two years—"AI needs computing power, computing power needs data centers, and data centers need capital expenditure"—has been severed at its midpoint.

Representative Ansari went a step further, calling for a "pause on advanced AI development" and a ban on ASI (Artificial Superintelligence).

Such extreme proposals were enough to send Wall Street into a panic.

Musk: The Biggest Gambler, the Hardest Hit Loser

In this crash, no one bled more than Musk.

Tesla plummeted 11% on November 5, following a 3.3% drop the previous day. SpaceX shares plunged 9%, falling below their IPO offering price of $135. Musk's personal net worth evaporated by approximately $74 billion on the day of this collapse.

Musk donated $366 million to political causes during these midterms ($276 million alone since July), making him the largest known individual political donor. Yet, almost every Republican candidate he backed suffered a thorough defeat.

More critically, the threat of data center bans stemming from the Democratic victory directly struck his core assets: Tesla's AI and autonomous driving narratives, as well as SpaceX's planned space data center initiative.

After Democrats secured control of both the Senate and the House, Musk deleted his earlier posts urging voters to support Republicans on his social media platform X, a rare admission of defeat.

Berkshire and Walmart: The Other Side of the Divide

While the blood from tech stock declines hasn't even dried, another world is already celebrating.

Berkshire Hathaway Class A shares hit a record high of $821,931. During the days when AI stocks crumbled, this "most boring stock" became the most sought-after asset across the entire market.

The reason is simple: Berkshire holds $365 billion in cash reserves.

Everyone is debating whether AI is a bubble, hedge funds are forced to sell their best assets at the worst possible time, while Buffett (with successor Greg Abel now at the helm) sits atop a mountain of cash, waiting to scoop up bargains.

Funds are flowing from tech stocks into Berkshire, treating it as the ultimate vehicle for a "short AI trade."

Think about it: the money across the market most optimistic about the future is pouring into a company famous for never touching things it doesn't understand.

The story with Walmart is even more interesting.

In October, Walmart shares rose 13.9%, posting its best monthly performance since 2014. On the crashing November 5, Walmart bucked the trend, rising 5.6%, outperforming the S&P 500 by nearly 13 percentage points. The consumer staples sector ETF (XLP) is up 13.5% year-to-date.

Walmart itself hasn't gotten better. The change has happened among consumers: they are getting poorer, or at least feel that way.

High-income households are "downgrading consumption," shifting from Whole Foods to Walmart.

K-Shaped Divergence

The crash of AI stocks, the stampede of hedge funds, Berkshire's apotheosis, Walmart's surge, and long queues at McDonald's—all these seemingly disjointed phenomena actually point to the same underlying logic: the K-shaped economy.

Data from Oxford Economics shows that AI has indeed driven household wealth growth of over 7%, but it is highly concentrated in the hands of a few. The most glaring set of data from Q1 2026: economies linked to AI grew by 31%, while non-AI economies grew by just 0.1%.

Société Générale makes it clear: the returns from AI ultimately flow to three groups: those who own compute power, those who own data, and those who own models. For everyone else, AI is not an opportunity; it is a cost.

BlackRock CEO Larry Fink has long warned that AI could exacerbate inequality.

Oxford Economics presents an even harsher forecast: this K-shaped divergence could persist until 2035.

This partially explains the split in capital flows on the crash day:

AI stocks are being dumped because the market realizes AI-driven growth could be halted by policy, and this growth inherently fails to benefit the broader economy. Defensive consumer stocks rose against the trend because regardless of how the AI story unfolds, people still need to eat, and increasingly more can only afford cheaper goods.

The rises in Berkshire and Walmart are not cause for optimism. Their prosperity rests on the consumption downgrade of the majority; Berkshire's new highs rest on risk-averse demand amidst the ruins of tech stocks.

Their rise itself serves as a warning: smart money is pricing in a world where "AI does not save everyone."

The K-shaped divergence has evolved from a market phenomenon into an era-defining structure.

This landscape may endure for a very long time.