Stocks in biggest loss in 8 months amid focus on Comey's Trump memo

Why investors hate uncertainty

Enough may finally be enough for Wall Street following reports that President Donald Trump asked then-FBI Director James B. Comey to hit the brakes on an investigation into former national security adviser Gen. Michael T. Flynn and his alleged connections to Russia and Turkey. This follows reports that the president may have spilled classified intelligence to Russian officials during an Oval Office meeting last week.

The financial fallout on Wednesday produced the single worst day for the Dow Jones Industrials Average since September 2016, with the famed stock market benchmark tumbling more than 373 points, or about 1.8 percent, by the close of trading at 4:00 p.m. The broader S&P 500 stock index saw a similar percentage decline. All told, the "Trump Dump," as some Wall Street wags called it, wiped out more than $300 billion in shareholder wealth in less than seven hours.  

Wall Street experts see mounting unease in the markets over the latest developments in the U.S. government that could undermine a historic post-election stocks rally fueled by hopes of pro-growth legislation from President Trump.

"Financial markets could be in for a negative shock if the fallout from these investigations delay, or even curtail Trump's pro-growth measures," Oxford Economics said in a note. "Additionally, the growing risk of impeachment and policy mishaps could also destabilize markets and lead to substantial negative confidence shocks and wealth effects, both of which could weigh on private sector outlays and rock the economy."

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Investment clients are beginning to ask about impeachment risks, according to Ian Shepherdson, chief economist with Pantheon Macroeconomics. "Trump's agenda is now very unlikely to happen; the stock market is vulnerable," he said. "The turmoil in Washington has begun to hit markets. We don't know how this will end, but we do know that it isn't going away quickly. Extended political chaos carries real risks for markets, regardless of the ultimate outcome."

Until now, it had been all about easy strength for investors with the S&P 500 and Nasdaq Composite drifting to new highs thanks to a vertical surge in a handful of mega-cap tech stocks like Amazon (AMZN). The CBOE Volatility Index (VIX) -- also known as Wall Street's "fear index" -- had in recent weeks had seen its longest consecutive streak below 11, a sign of investor complacency, if not confidence.

But now, a series of scandals drip-drip-dripping from the White House threatens not only to delay any bipartisan progress on tough issues like health care and tax reform, but according to some areas of the media, could threaten Trump's presidency Donald Trump fan Jack Welch, the former CEO of General Electric, told CNBC viewers Wednesday that an impeachment proceeding would "blow the market away."

Wednesday's drops on Wall Street followed declines in global stock markets overnight Tuesday as well as a tumble in the value of the U.S. dollar. The weakness in the dollar is especially notable, with the greenback reversing its post-election rally on a number of headwinds, including uneven economic data, and investor flows out of U.S. assets and into foreign stocks (both emerging market and Europe) in addition to doubts about Trump's agenda.

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Bespoke Investment Group notes that the Eurozone Economic Surprise Index is higher than 96 percent of all readings over the last five years, while the U.S. Economic Surprise Index is lower than 84 percent of all readings over the same period. Some softness in recent inflation data is also increasing the odds the Federal Reserve slows its rate hike pace this year.

Before we get confirmation of that at the June policy meeting, watch for a near-term market pause. Jason Goepfert at SentimenTrader noted that about 35 percent of the stocks in the Nasdaq have hit a 52-week high -- among the highest readings in recent decades. Historically, when this has happened, it often signaled a short-term bout of buying exhaustion with prices backing off over the weeks that followed.