Stocks, bond yields reflect concerns as Washington turmoil roils Wall Street
The brewing political crisis in Washington rattled Wall Street Wednesday, knocking the Dow Jones industrial average down more than 370 points and giving the stock market its biggest singleday slump in eight months.
Investors worried that the possible fallout from a report alleging President Donald Trump asked now-fired FBI Director James Comey to drop the bureau’s investigation into former National Security Adviser Michael Flynn may stymie the White House’s plans to cut taxes, roll back government regulations and other aspects of Trump’s pro-business agenda.
The steep drop ended an unusually long period of calm for the markets, which had been hovering near all-time highs.
Financial stocks, which had soared in the months since the election, declined the most as bond yields fell sharply. Bonds, utilities and gold rose as traders shunned riskier assets. The dollar fell.
“When you are at these valuations, the market has to reassess whether or not the agenda is actually going to be implemented,” said Quincy Krosby, market strategist at Prudential Financial. “What you’re seeing is a classic run toward safety.”
The Standard & Poor’s 500 index had its biggest drop since September, sliding 43.64 points, or 1.8 percent, to 2,357.03. The Dow lost 372.82 points, or 1.8 percent, to 20,606.93. The Nasdaq composite index, coming off setting two consecutive record highs, gave up 158.63 points, or 2.6 percent, to 6,011.24.
Small-company stocks fell more than the rest of the market. The Russell 2000 index sank 38.79 points, or 2.8 percent, to 1,355.89. Those companies would stand to benefit even more than large ones from corporate tax cuts Trump is proposing. They also had risen sharply in the months following the election.
The sell-off snapped an unusually long period of calm after hitting a series of record highs. On Tuesday the S&P 500, the benchmark favored by professional investors, marked its 15th straight day of moving up or down by less than 0.5 percent. It closed at its latest record high on Monday.
All told, the S&P 500 is still up 10.2 percent since the election last November, while the Dow is up 12.4 percent.
Bond prices rose sharply. The 10-year Treasury yield fell to 2.21 percent from 2.33 percent late Tuesday, a large move.
The seeds of Wednesday’s steep market sell-off were present late Tuesday, when a published report revealed that Trump allegedly made a personal appeal to Comey to drop the bureau’s investigation into Flynn. The White House denied the report.
Trump had already been facing pointed questions about his discussions with Russian diplomats during which he was reported to have disclosed classified information.
“The controversy is not new, but this one really seems to be sticking,” said Erik Davidson, chief investment officer for Wells Fargo Private Bank. “The Trump economic program is either going to be delayed by this turn of events or possibly be derailed, that’s why investors are acting the way they are.”
The latest headlines ratcheted up the market’s unease. The VIX index, a measure of how much volatility investors expect in stocks, rose to its highest level since April 13. Investors shifted into U.S. government bonds, pushing yields lower, and into gold. The precious metal jumped 1.8 percent, climbing $22.30 to settle at $1,258.70 per ounce.