U.S. equities and stock exchange traded funds are experiencing one of their worst days in months on speculation that former FBI Chief James Comey hinted that President Donald Trump tried to intervene with a federal investigation, triggering a round of political risk-induced selling.
The S&P 500 Index, along with related funds including the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO), declined 1.3% Wednesday.
A new report revealed that Trump asked then-FBI Director James Comey to end a probe into the former national security advisor, raising questions over whether the President tried to tamper with a federal investigation, reports Caroline Valetkevitch for Reuters.
The three major indices reacted by declining over 1%, with the S&P 500 briefly on track for its worst day since September.
The new revelation comes on the back of a rocky week in Washington as Trump abruptly fired Comey and reportedly disclosed classified information to Russia’s foreign minister about a planned Islamic State operation.
“I think the biggest issue right now is what does this mean for the plan that we thought we were on,” Jeremy Bryan portfolio manager at Gradient Investments, told Reuters. “Is it delayed or is it dead?”
Consequently, market players are growing concerned over Trump’s future ability to push through his pro-growth agenda, including tax cuts, deregulation and fiscal spending, which have helped fuel the post-election rally to record highs.
The new report on Trump’s actions also prompted some congressional Republicans to call for further investigation.
“The bigger picture here is it puts another dent in the likelihood of getting a Congressional majority to pass Trump’s agenda,” R.J. Grant, head of equity trading at KBW Inc., told the Wall Street Journal.
The strong corporate earnings also helped support U.S. market’s lofty valuations. The S&P 500 trades at nearly 18 times forward earnings, compared to its long-term average valuation of 15 times. With earnings season more or less over, traders are refocusing on other short-term triggers like political risk.
“We’re largely through the earnings season, so political uncertainty is probably going to be the largest source of risk in the next three to six months.” Bryan added.
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