Wall Street’s bull rally shuddered to a halt on Friday as former national security adviser Michael Flynn pleaded guilty to lying to the FBI, and reportedly indicated that he would testify that President Donald Trump, as a candidate, told him to work with Russian officials.
As part of a plea deal, Flynn has admitted that a senior member of the Trump transition team directed him to make contact with Russian officials in December 2016.
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The government did not reveal the identity of the senior transition official.
Flynn becomes the first official who worked in the Trump White House to make a guilty plea so far in a wide-ranging investigation led by special counsel Robert Mueller into possible coordination between Russia and the Trump campaign to influence the outcome of the 2016 election.
But ABC reported that Flynn was prepared to testify against Trump, specifically. That news sent the Dow Jones industrial average down more than 300 points in a matter of minutes. The Standard & Poor’s 500 index and the Nasdaq composite also began reversing earlier gains.
The stock market has been gaining on a feverish pitch since Trump was elected a year ago, as Trump attempted to push a pro-business agenda that included health care and tax reform, massive infrastructure spending and less financial and environmental regulation.
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This week’s gains were fueled on expectations that Senate Republicans would pass a tax reform bill that would greatly reduce business taxes. A vote was scheduled for Friday and if passed, the bill would then go through a reconciliation process with a House version of the bill.
Trump, in particular, has delighted in taking credit for stock market gains. He tweeted two days ago: “Looks like another great day for the Stock Market. Consumer Confidence is at Record High. I guess somebody likes me (my policies)!
Looks like another great day for the Stock Market. Consumer Confidence is at Record High. I guess somebody likes me (my policies)!
— Donald J. Trump (@realDonaldTrump)
Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance, says the Flynn plea will have a negative short-term impact on the market, particularly if tax reform passes Congress.
“The Trump rally may be interrupted, but it will resume as long as the economy continues to improve and corporate profitability continues on the path it’s been on,” Zaccarelli says. “It’s my expectation that this will hold true and I would buy any large sell-off and I will continue to advise that course of action until I see signs of recession, because ultimately that is what will signal the end of this bull market.”
Scott Coyler, CEO and chief investment officer at Advisors Asset Management, also forecasts a short-term impact.
“The process being carried on by the special prosecutor has not yet produced a clear smoking gun substantial enough to mount a serious threat to Trump,” he says. “The events that are unfolding with Flynn appear to present more of a threat but the extent of what Flynn knows is yet not known. The U.S. equity markets are very ripe for a correction and this may be the catalyst to cause one. However, this is one day, one headline, and arguably doesn’t change the direction of the economy or the direction of earnings.”
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Wall Street Shudders on Report that Flynn Implicates Trump originally appeared on usnews.com
