U.S. stocks slump, bonds rally amid Trump turmoil – Chicago Tribune

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Stocks dropped and foreign currencies gained against the U.S. dollar as the weeklong drumbeat of bad news surrounding the Trump administration sows doubts about whether the president’s pro-business policies will be enacted.

Markets wordwide fell on reports that President Donald Trump reportedly asked then-FBI Director James Comey to drop his investigation into former National Security Adviser Michael Flynn’s relationship with Russia. The Standard & Poor’s 500-stock index fell more than 36 points, or 1.5 percent, and the Dow Jones industrial average were off more than 300 points or 1.5 percent, Nasdaq was down more than 134 points or 1.6 percent and the Russell 2000 gave up 2 percent by early afternoon trading Wednesday.

Wednesday’s market turbulance comes amid near-record highs following an eight-year bull run fueled by strong earnings, especially in the technology sector. The stock market has been on a tear since the November election, bolstered in part by a president who has endorsed business-friendly policies such deregulation and tax cuts.

The markets have also been remarkably level, with the S&P 500 fluctuating less than 0.5 percent for 15 straight trading days.

“Markets go down sometimes, and after a period of abnormally low volatility, normal volatility seems more extreme,” said Matthew Peterson, chief wealth strategist for LPL Financial. “The markets are at much higher levels, so the headline that screams ‘Dow down 250’ is really only down 1.2 percent.”

But the turmoil in Washington has raised questions about whether the Republican tax reform agenda will be derailed by Trump’s missteps and whether an ambitious infrastructure plan will ever come to pass. Both were campaign promises that helped fuel the “Trump rally.”

“The latest controversy involving the Trump administration erodes confidence in his administration’s ability to enact tax reform,” said Michael Farr, who runs a Washington investment firm. “The prospect of significant tax reform has been buoying markets since President Trump was elected. We’ve had many controversies, but nothing has gotten the market’s attention. But once you start to go after tax reform, you are going to have the market’s full attention.”

The Dow, which posted its worst daily performance since September, was weighed down by Apple and Goldman Sachs. Apple was down nearly 2 percent and Goldman Sachs was down about 4 percent. Utilities and real estate were bucking Wednesday’s downward trend.

European shares dipped on concerns over Washington. The pan-European STOXX 600 fell 0.3 percent. Britain’s FTSE 100 however hovered close to its record high.

Overall, European stock returns have climbed this year thanks to rejection of populist political candidates and to an economic recovery that has boosted earnings.

Brad McMillan, chief investment officer at Commonwealth Financial Network, said the current noise out of Washington alone is unlikely to derail the bull market.

“This is static,” he said. “From a historical perspective, it is just noise. To get a big pullback, typically you need a recession, the Federal Reserve raising rates or you need a spike in oil prices.”

He said the current prospect of slowed growth was unlikely to cause a correction.

As for the market’s pullback on the Washington chaos, McMillan called it “a rational response to the chance that the Republican Congress will not be able to move their policy priorities forward.

“The markets have assumed that they were going to get stimulative action from the Congress, with tax reform being the big one,” he said. “But also health-care reform, which is still alive, and general deregulatory action. Right now, we have a Congress that is likely to be consumed with other priorities.”

Peterson said that despite the distractions out of Washington and the possibility that there is a loss of confidence in Trump, long-term market themes are positive.

“Earnings season has been very strong, both domestically and overseas,” he said. “This changes the calculus of how the dependent the market has been on policy, when earnings have been so much better than what were pretty aggressive estimates.”