Stocks sell off on Trump concern as dollar hits low from November
NEW YORK (Reuters) – US stocks and the dollar dropped and bond prices rallied on Wednesday as investors fled risky assets amid uncertainty about US President Donald Trump’s ability to deliver on tax and regulatory reform.
Reports that Trump asked thenFBI director James Comey to end a probe into the former national security adviser have raised questions over whether Trump tried to interfere with a federal investigation.
All three major US stock indexes were down more than 1% in afternoon trading. The S&P 500 was briefly on track for its worst day since September 13, but it pared some of those losses to put it on track for its biggest daily fall in about two months. The dollar index has erased its postelection gains.
The news comes on the heels of a tumultuous week at the White House when Trump unexpectedly fired Comey and reportedly disclosed classified information to Russia’s foreign minister about a planned Islamic State operation.
Optimism over pro-growth policies under Trump drove a sharp rally in US stocks after the November 8 US election.
“We’re getting into stall mode because of the early expectations for the Trump presidency,” said Joseph Benanti, the managing director and senior sales trader at Rosenblatt Securities in New York. “It’s all being put well on the back burner and even off the stove. It’s kind of worrisome as it could take time to muddle through this.”
The Dow Jones Industrial Average was down 254.56 points, or 1.21%, to 20,725.19, the S&P 500 lost 27.87 points, or 1.16%, to 2,372.8, and the Nasdaq Composite dropped 108.10 points, or 1.75%, to 6,061.77.
Both the Dow and S&P 500 fell below their 50-day moving averages for the first time since April 21.
Volatility spiked. The CBOE Volatility index was up 2.8 points.
Bank stocks, which outperformed in the postelection rally, were the worst hit. The S&P 500 financial sector tumbled more than 2%, led by losses in Bank of America and J.P. Morgan.
At nearly 18 times forward earnings, the S&P 500 trades at a significant premium to its long-term average valuations of 15 times, according to Thomson Reuters data.
MSCI’s gauge of stocks across the globe fell 0.9%, while European shares ended down 1.4%.
Several money managers said they were not yet likely to make changes in their portfolio as a result of the latest White House news.
“We aren’t likely to make major changes,” said Edward Perkin, the chief equity investment officer at Eaton Vance. “We are already well positioned, but we need to think about a more negative scenario re tax-reform versus what we were previously thinking.”
The dollar index, which tracks the US currency against six peers and had scaled a 14-year peak of 103.82 on January 3, fell 0.4% to its lowest level since November 9, surrendering all of its “Trump bump” gains.
US Treasury yields fell, with benchmark 10-year notes up 23/32 in price to yield 2.25%, the lowest level since April.
In commodity markets, safe-haven gold hit a two-week high, while oil prices were higher. Spot gold rose for a fifth day and was up 1.8% to $1,258.38 an ounce.
Brent crude was up 1.6% to $52.49 per barrel, while US light crude rose 1.4% to $49.34.