The tumult in Washington deepened over allegations that President Donald Trump had sought to end the FBI's investigation into ties between Trump's first national security adviser, Michael Flynn, and Russia. This raised questions about whether the president improperly attempted to interfere with a federal investigation. The controversy spooked investors.
U.S. stocks and the dollar sold off and bond prices rallied as investors fled risky assets amid uncertainty about Trump's ability to deliver on his policy agenda, such as tax and regulatory changes. The S&P 500 on Wednesday suffered its biggest one-day fall since September as hopes for tax cuts and other pro-business policies faded after reports that Trump tried to interfere then-FBI Director James Comey's probe.
The Dow Jones Industrial Average <.DJI> fell 370.12 points, or 1.76 percent, to 20,609.63, the S&P 500 <.SPX> lost 43.35 points, or 1.81 percent, to 2,357.32 and the Nasdaq Composite <.IXIC> dropped 158.63 points, or 2.57 percent, to 6,011.24.
U.S. stocks and the dollar sold off and bond prices rallied on Wednesday as investors fled risky assets amid uncertainty about Trump's ability to deliver on tax and regulatory reform.
U.S. stock market declines picked up in afternoon trading. The Dow Jones Industrial Average was down more than 300 points and the CBOE Volatility index <.VIX> - Wall Street's fear gauge - rose above the 14 level for the first time since April 21.
The dollar index <.DXY> has erased its post-election gains. Optimism over pro-growth policies under Trump had driven a sharp rally in U.S. stocks after the Nov. 8 election.
"We're getting into stall mode because of the early expectations for the Trump presidency. It's all being put well on the back burner and even off the stove. It's kind of worrisome as it could take time to muddle through this," said Joseph Benanti, managing director, senior sales trader at Rosenblatt Securities in New York.
The Dow Jones Industrial Average <.DJI> was down 333.24 points, or 1.59 percent, to 20,646.51, the S&P 500 <.SPX> had lost 38.76 points, or 1.61 percent, to 2,361.91 and the Nasdaq Composite <.IXIC> had dropped 141.99 points, or 2.30 percent, to 6,027.88.
Both the Dow and S&P 500 fell below their 50-day moving averages for the first time since April 21.
While previous threats to Trump's plans have rattled investors, they had failed to cause any significant pull back in stocks. The VIX last week closed at 9.77, its lowest close since December 1993.
Bank stocks, which outperformed in the post-election rally, were the worst hit on Wednesday. The S&P 500 financial sector <.SPSY> tumbled more than 3 percent, led by losses in Bank of America <BAC.N> and JPMorgan <JPM.N>.
At nearly 18 times forward earnings, the S&P 500 trades at a significant premium to its long-term average valuations of 15 times, according to Thomson Reuters data.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> fell 1 percent, while European shares <.FTEU3> ended down 1.4 percent.
Several money managers said they were not yet likely to change their portfolios as a result of the latest White House news.
"We aren't likely to make major changes. We are already well positioned, but we need to think about a more negative scenario re tax reform versus what we were previously thinking," said Edward Perkin, chief equity investment officer at Eaton Vance.
The dollar index, which tracks the U.S. currency against six peers and had scaled a 14-year peak of 103.82 on Jan. 3, fell 0.6 percent to its lowest level since Nov. 9, surrendering all of its "Trump bump" gains. The safe-haven Swiss franc hit six-month highs.
Prices of bonds, also seen as safe-haven assets, rallied.
Benchmark 10-year notes <US10YT=RR> were up 1 point in price to yield 2.21 percent.
In commodity markets, safe-haven gold <XAU=> hit a two-week high, while oil prices were higher. Spot gold rose for a fifth day and was up 1.8 percent at $1,258.38 an ounce.
Brent crude <LCOc1> gained 1.1 percent to settle at $52.21 per barrel, while U.S. light crude <CLc1> rose 0.8 percent to settle at $49.07.