Is this the beginning of the end of the Trump rally?
In the first major test to a robust, months-long rally that had major indices setting new all-time highs almost daily, the Dow Jones industrial average shed around 240 points, or 1.1 percent, by noon on Wednesday. The Standard & Poor’s 500 index was off about 1 percent, while the Nasdaq composite was harder hit, falling 1.5 percent. The tech-heavy Nasdaq had set all-time closing records on both the Monday and Tuesday sessions.
[See: 9 ETFs to Buy When the Market Tanks.]
Doubt creeps in. Ironically, the cause of death for the Trump rally may end up being the president himself. The reason for Wednesday’s panic appears to be the political turmoil that’s intensified in recent days, particularly the reports of a memo written by recently fired FBI Director James Comey that purports to chronicle a private meeting with President Donald Trump in which the commander-in-chief tried to persuade Comey to drop the investigation into former national security adviser Mike Flynn.
The dovetailing of these details with revelations that Trump shared classified information with the Russians last week creates a number of serious headwinds for the Trump administration, and Wall Street is sending clear signs Wednesday that it believes these issues will distract the administration from important legislative agendas that were key to the rally to begin with.
“Investors are starting to question the Trump trade. It was predicated on health care reform, tax reform and deregulation. That momentum has clearly stalled. The market does need those elements in place to move higher — without them it’s a crapshoot,” says Sean O’Hara, president of Pacer ETF Distributors.
Winners and losers. Nine of the 11 stock market sectors were in the red on Wednesday, with financials being the biggest loser by far, off 2.2 percent. The two biggest laggards in the Dow were Goldman Sachs (ticker: GS) and JPMorgan Chase & Co. ( JPM), which fell by 3.8 percent and 2.6 percent, respectively.
The financial sector had been the single biggest stock market beneficiary of the Trump agenda, as the specter of deregulation and higher rates got investors giddy.
It’s also no accident that the third-largest decliner in the Dow on Wednesday was Apple ( AAPL), which was off 2 percent, roughly twice the sell-off suffered by the overall market. Apple stock also had a lot to gain from Trump’s policies — specifically tax reform — due mainly to its large overseas cash coffers, which are in the neighborhood of $240 billion. The Trump tax plan would create a tax holiday that would allow companies like Apple to repatriate money from overseas into the U.S. at a dramatically reduced tax rate.
While there were many losers on Wall Street Wednesday, there were a few winners as well.
The typical flight-to-safety investments did well, with Treasurys advancing as the 10-year yield fell 8 basis points to 2.247 percent. Gold was also rallying, gaining 1.6 percent, or about $20, to trade around the $1,257 level.
[See: 7 Stocks That Soar in a Recession.]
And the biggest winner of the day was the CBOE Volatility Index, which gained a whopping 23 percent during intraday trading. The VIX, commonly referred to as the “fear index,” was trading at all-time record lows as recently as May 9.
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Dow Plunging as Trump Rally Cools originally appeared on usnews.com
