The Dow Jones Industrial Average tumbled more than 370 points, Treasuries rallied the most since Brexit and volatility spiked higher as the turmoil surrounding the Trump administration roiled financial markets around the globe.
Major U.S. stock indexes tumbled the most in eight months, while the CBOE Volatility Index jumped the most since the U.K. voted to leave the European Union, 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 10-year Treasury yield sank toward 2.20 percent in its steepest decline since June. The spread between 10-year and two-year yields narrowed to the flattest since before Trump’s election. The dollar weakened to a level last seen in November. Emerging-market equities halted a seven-day rally. Gold futures extended a rally to six days.
“What has been setting in over the course of the day is that political uncertainty is something that’s likely going to be with us for a significant amount of time,” said Dennis Debusschere, Evercore ISI’s head of portfolio strategy and quant. “We may be looking at a higher volatility backdrop with a trending lower market for the next couple of months.”
Wall Street finally took notice of political wrangling in Washington as investors began to question the Trump administration’s ability to focus on policy as it careens from one crisis to another. Many of the trades sparked by the president’s shock election have reversed in recent days, with the dollar all but erasing its post-election rally. The S&P 500 Index remains 10 percent higher since then, but stocks most sensitive to Trump policy prescriptions have begun to wobble.
“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 Ltd., 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.”