Key Highlights

● The Nasdaq Composite had risen for seven straight sessions before Thursday's drop of 694 points.

● The Nasdaq's record close of 27,599.89 came on October 6.

● The Philadelphia Semiconductor Index closed just above its 200-day moving average.

● About two of every three S&P 500 stocks rose, and the equal-weight index finished higher.

As the Nasdaq Composite suffered its steepest drop since June on Thursday, October 22, one market commentator offered investors a historical reminder. "Buying the dip here has [a] pretty good record of working," he said.

The comment came as the Nasdaq sank 694 points to 26,008.86, wiping out about $1 trillion in market value. The S&P 500 fell 93.74 points to 7,663.43, its worst day since July, while the Dow Jones Industrial Average edged up 11.89 points to 52,867.98.

The case for the dip

The comment echoes a familiar market argument: sharp selloffs in a broadly rising market have often been followed by recoveries, though past patterns do not guarantee future results.

The context matters. The Nasdaq had risen for seven straight sessions before Thursday. The US market hit a record high earlier in October, and the Nasdaq's record close of 27,599.89 came on October 6.

Even after Thursday's rout, the Philadelphia Semiconductor Index remained sharply higher for the year and closed just above its 200-day moving average.

What sparked the selling

The selloff was driven by fresh worries about the cost of artificial intelligence. Meta Platforms (NASDAQ:META) said on Wednesday that it expects 2026 capital spending of $135 billion to $145 billion and posted negative free cash flow of $2.12 billion. Lam Research (NASDAQ:LRCX) flagged supply constraints.

"Investors are starting to realize that there are some holes in the AI story," one strategist said.

Nvidia (NASDAQ:NVDA) was trading at $212.21 and was the single biggest drag on the S&P 500. Meta was trading at $648.85, its worst day since July.

Sentiment is already gloomy

Dip buyers often look for signs that pessimism has run its course. There were several such signs. A weekly survey of individual investors showed bears outnumbering bulls. Clients of a major bank pulled a record $14.8 billion from single stocks. A bank's data showed hedge-fund short leverage near its most extreme level of the past five years.

"Maybe we'll finally get a change in sentiment," another market commentator wrote.

A note of caution

Not everyone is ready to call a bottom. One market commentator wrote that "it will take more than one or two days to change the trend." He noted that the Nasdaq has had more new lows than new highs for 39 straight sessions.

The Nasdaq also closed below its 50-day and 100-day moving averages, at its lowest close since mid-September.

Beneath the surface, though, the market was sturdier. About two of every three S&P 500 stocks rose, and the equal-weight S&P 500 finished higher.

Friday's futures and the week that decides it

Early signs pointed to a calmer start on Friday. S&P 500 futures were roughly flat on Thursday evening, while Nasdaq-100 futures edged lower.

The real test comes next week. Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) report on October 28, the same day as the Federal Reserve's rate decision. Amazon (NASDAQ:AMZN) and Intel (NASDAQ:INTC) follow on October 29, alongside third-quarter GDP and September PCE data. Those events will show whether dip buyers are rewarded or whether the selling deepens.