Wall Street slumps, bonds rally as turmoil engulfs Trump administration

 Traders at the New York Stock Exchange in New York. PHOTO: AFP
Traders at the New York Stock Exchange in New York. PHOTO: AFP

WASHINGTON (BLOOMBERG, REUTERS) - The turmoil engulfing President Donald Trump's administration spilled into financial markets as United States stocks fell the most since March, measures of volatility spiked higher and Treasuries rallied with gold.

The Dow Jones Industrial Average lost more than 200 points, shattering the calm that gripped markets in the past month as the crisis threatened to derail the policy agenda that helped push equities to records as recently as Monday. 

The US dollar dropped a sixth day, while Treasury 10-year yields tumbled to 2.25 per cent. Emerging-market equities halted a seven-day rally. Crude rose after U.S. inventory data. "If he's preoccupied defending himself and if it goes a lot further, then any hope of his legislative agenda coming to the fore is going to be reduced," John Stopford, the London-based head of fixed-income at Investec Asset Management, said in an interview with Bloomberg TV. "Clearly at the margin it's a negative. At the moment there's a classic environment for yields to rally a bit further and for the dollar to sell off."

The latest development could distract Mr Trump from pursuing his proposed policies such as tax cuts and simpler bank regulations, which have underpinned a record-setting rally on Wall Street.

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Bank stocks, which have outperformed in the post-election rally, were the worst hit. The S&P 500 financial sector dropped 1.67 per cent, led by losses in Bank of America and JPMorgan. Goldman Sachs was the biggest drag on the Dow.

The VIX, Wall Street's "fear gauge", shot up to 12.8 points and was on track for its biggest one-day percentage increase since August. "Equity investors are beginning to display concerns over the domestic political situation that is not likely to suddenly vanish," Peter Cardillo, chief market economist at First Standard Financial wrote. "The equity markets have ignored the noise out of Washington. However, we think the situation is likely to change as this crisis leads to an interruption of the pro-growth White House agenda, deflating the Hope Rally."

At 9:52 a.m. ET (9:52 p.m. Singapore time), the Dow Jones Industrial Average was down 185.86 points, or 0.89 per cent, at 20,793.89, the S&P 500 was down 20.52 points, or 0.86 per cent, at 2,380.15 and the Nasdaq Composite index was down 61.63 points, or 1 per cent, at 6,108.24. Eight of the 11 major S&P 500 sectors were lower.

Traditionally defensive sectors utilities, consumer staples and real estate were higher.

Declining issues outnumbered advancers on the NYSE by 2,213 to 529. On the Nasdaq, 2,126 issues fell and 379 advanced.

The S&P 500 index showed three new 52-week highs and 14 new lows, while the Nasdaq recorded 15 new highs and 44 new lows.