Stocks got crushed on Wednesday, recording their worst day of the year after hitting record highs earlier in the week.
When all was said and done the Dow lost 372 points, or 1.8%, the S&P 500 lost 43 points, or 1.8%, and the Nasdaq lost 158 points, or 2.6%. Gold prices rose 1.8% to around $1,258 an ounce, while crude oil prices were up about 1% to trade just above $49 a barrel.
Treasuries were also rallying, with the 10-year yield falling to 2.22% and the two-year moving to 1.24%. Treasury prices rise as yields fall.
Wednesday’s drop in markets comes after Tuesday evening saw the second damaging story for President Donald Trump in as many days.
The New York Times reported Tuesday evening that Trump asked former FBI director James Comey to to end an inquiry into ties former national security advisor Michael Flynn had to Russia.
And this report came just a day after The Washington Post reported Trump revealed “highly classified” information to Russia’s foreign minister.
And as Bespoke Investment Group pointed out in an email early Wednesday, the market reacting negatively to Trump-related headlines is a definite change in character from what we’ve become accustomed to in recent months.
Charlie Bilello, director of research at Pension Partners, noted that Wednesday was just the second day the S&P 500 lost 1% or more this year and its fourth 1% move overall. This puts the benchmark index on pace for the fewest 1% moves since 1964.
After the market’s violent election night reaction, stocks have more or less moved up and to the right unabated, with the political chaos roiling Washington, D.C. seeming to have little impact on financial markets.
Stocks, as we noted above, are near record highs and volatility in the market has collapsed.
But this does not mean that the oft-mentioned political risk is completely gone from markets. As Bespoke notes, if and when political headlines begin to move markets in earnest it will happen quickly.
On Tuesday, Yahoo Finance’s Sam Ro highlighted commentary from Greg Valliere, chief global strategist at Horizon Investments, who said that “nothing” is likely to derail markets.
“North Korea is getting closer to having an ICBM that could get close to Hawaii, with a scary payload; a U.S. pre-emptive strike is still on the table. And cybersecurity finally has emerged as serious threat,” Valliere wrote. “Markets will have to worry about these issues, but they won’t significantly affect interest rates or earnings.”
And while this may be true, another thing worth keeping in mind is that while stocks have enjoyed a strong run over the last six months, most every year features a decline of 5% or more in the stock market.
No matter the catalyst, then, investors ought to always be ready for a big drop in the stock market.
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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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