Wall Street sinks on tax cut delay fears

Wall Street fell sharply on Tuesday as investors worried that President Donald J. Trump will struggle to deliver promised tax cuts that propelled the market to record highs in recent months, with nervousness deepening ahead of a key healthcare vote.

WALL STREET fell sharply on Tuesday as investors worried that President Donald J. Trump will struggle to deliver promised tax cuts that propelled the market to record highs in recent months, with nervousness deepening ahead of a key health care vote.

The S&P 500 and Dow Jones Industrial Average lost over 1% in their worst one-day performance since before Mr. Trump’s election victory in November last year.

The S&P financial index sank 2.87%, its biggest daily fall since June. That added to losses in the sector since the Federal Reserve last week raised interest rates by 25 basis points and signaled it would remain on a gradual pace of hikes, a less aggressive stance than some investors expected.

Banks benefit from higher interest rates and their stocks are sensitive to changes in expectations of how quickly the Fed will adjust rates. Bank of America slumped 5.77%, the biggest drag on the S&P 500, while a 3.72% drop in Goldman Sachs pulled the Dow lower.

VALUATIONS ELEVATED

“There was a feeling the Fed was going to possibly be more hawkish last week. That didn’t happen,” said Mark Kepner, managing director at Themis Trading in New Jersey.

“That takes a little out of the higher rates that the banks want.”

Republican party leaders aim to move controversial health care legislation to the House floor for debate as early as Thursday. But they can only afford to lose about 20 votes from Republican ranks, or risk the bill failing, since minority Democrats are united against it.

With valuations stretched, investors see the Trump administration’s struggles to push through the health care overhaul as a sign he may also face setbacks delivering promised corporate tax cuts. Expectations of those tax cuts are a major reason for the 10% surge in the S&P 500 since Mr. Trump’s election.

“The market is starting to get a little fed up with the lack of progress in health care because everything else is being put on the back burner,” said RJ Grant, head of trading at Keefe, Bruyette & Woods in New York.

The Russell 2000 index of smallcap stocks fell 2.71%, its worst day since September.

The financial sector has been the best performing of the 11 major S&P sectors since Trump’s election, surging 18% on his proposals to cut bank regulations and reduce taxes.

The Dow Jones Industrial Average dropped 1.14% to end at 20,668.01 points, while the S&P 500 lost 1.24% to 2,344.02. The Nasdaq Composite fell 1.83% to 5,793.83.

The CBOE Volatility index, Wall Street’s “fear gauge,” jumped 10%.

Under Mr. Trump, Wall Street has become unaccustomed to steep sell-offs.

The last time the S& P 500 lost 1% or more in a day was 110 trading sessions ago on October 11. Over the past two years, the S& P 500 has suffered losses of 1% or more about once every 11 sessions, according to Thomson Reuters data.

But investors have grown worried about elevated valuations.

The S& P 500 is trading at about 18 times forward earnings estimates against the longterm average of 15, according to Thomson Reuters data. —