Coverage: Stocks fall amid Washington concerns

The S&P 500 Index and the Dow Jones Industrial Average notched their biggest one-day fall since Sept. 9 as investor hopes for tax cuts and other pro-business policies faded due to concerns about President Donald Trump’s administration.

Sinead Carew of Reuters had the news:

Former FBI chief James Comey said in a memo that Trump had asked him to end a probe into former National Security Adviser Michael Flynn’s ties with Russia, the reports said.

That was only the latest worry in a tumultuous week at the White House after Trump unexpectedly fired Comey and reportedly disclosed classified information to Russia’s foreign minister about a planned Islamic State operation.

The developments intensified doubts that Trump would be able to follow through on his promises for tax cuts, deregulation and fiscal stimulus. Those pledges had helped fuel a record-setting post-election rally on Wall Street.

Selling accelerated late in the afternoon of one of the busiest trading days in months and the three major indexes ended near session lows.

“We’ve seen the Trump agenda derailed and try to get back on track several times. It’s registering with more investors that its going to be hard to get back on track with the latest allegations,” Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

Thomas Heath of The Washington Post reported that a well-watched volatility indicator also spiked:

The Dow Jones industrial average lost 368 points, or 1.8 percent to 20,611, as a broad array of other indexes all lost ground. Meanwhile, a widely followed measure of volatility known as the VIX, which had been subdued for months, spiked by a dramatic 21 percent in what was one of the most volatile days in the past decade.

While some had predicted that a surprise Trump victory would bring uncertainty to markets — and foreign markets sold off sharply as election returns came in — the stock market had kept up a steady rise since November. Many analysts cited newfound expectations that a Washington unified by Republican control would deliver an overhaul of the tax system and a large increase in spending on U.S. infrastructure — two of corporate America’s top policy goals.

The White House embraced the notion of a “Trump Rally,” and cited the gains as evidence of its immediate effect on the economy. Now, the question is whether the stock market will enter a period of new turbulence if the disarray emanating from the White House generates concern that those policy goals won’t be achieved.

“Right now, we have a Congress that is likely to be consumed with other priorities,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.

One day’s stock market movements, of course, can easily be reversed the next day. But market analysts still noted the convergence of arguably Washington’s most tumultuous week in years and the market swoon.

Patti Domm of CNBC.com reported that the market could become a correction if tax reform becomes unlikely: