U.S. equities and stock exchange traded funds stumbled as traders were reminded that politics can still affect market sentiment after President Donald Trump’s eldest son revealed possible Russian support during the election campaign.
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), were 0.3% lower Tuesday.
Donald Trump Jr. was told a Russian prosecutor was offering incriminating information about Hillary Clinton as part of Russian government support, Reuters reports.
Trump Jr. then agreed to meet with the lawyer during the campaign after being promised information that could derail Clinton’s election bid.
The markets reacted by turning risk-off and shifting toward safe-haven assets.
“The more the market has to grapple with events with Washington, the more we’ll see a situation where the market eventually breaks its will,” Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co, told Bloomberg. “The selloff is less than 50 basis points, we don’t need to make a mountain out of a mole hill, but the market does signal that it pays a lot of attention to the news. It might take the market a few minutes to a few days to figure out how important the news is.”
While the new revelations caused a precipitous falloff in U.S. equities, investors still assessed its impact on the Trump administration’s proposed policies, and some losses were quickly pared.
“I think people are worried that it just means more political uncertainty, and sort of a continuation of the stalemate in Washington, a continuation of the delay in trying to get the Trump agenda passed through Congress,” Robert Pavlik, chief market strategist at Boston Private Wealth, told Reuters.
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Some also attributed the quick selloff to institutional-level algorithms. Bucky Hellwig, senior vice president at BB&T Wealth Management, argued that “they look for certain words in news, so we saw this selloff.”
Looking ahead, investors will be closely watching the Federal Reserve Chief Janet Yellen’s two-day testimony starting Wednesday as the Fed preps for unwinding its massive accumulation of debt acquired to ease the financial downturn.
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