The stock market on Wednesday took its biggest dive since September, as Wall Street analysts said investors had begun to grapple with the increasing possibility that Washington would be consumed with chaos and fail to enact policies President Trump and his congressional allies have said would boost the economy.
The Dow Jones industrial average lost 368 points, or 1.8 percent to 20,611, as a broad array of other indexes all lost ground. Meanwhile, a widely followed measure of volatility known as the VIX, which had been subdued for months, spiked by a dramatic 21 percent in what was one of the most volatile days in the past decade.
While some had predicted that a surprise Trump victory would bring uncertainty to markets — and foreign markets sold off sharply as election returns came in — the stock market had kept up a steady rise since November. Many analysts cited newfound expectations that a Washington unified by Republican control would deliver an overhaul of the tax system and a large increase in spending on U.S. infrastructure — two of corporate America’s top policy goals.
The White House embraced the notion of a “Trump Rally,” and cited the gains as evidence of its immediate effect on the economy. Now, the question is whether the stock market will enter a period of new turbulence if the disarray emanating from the White House generates concern that those policy goals won’t be achieved.
“Right now, we have a Congress that is likely to be consumed with other priorities,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.
One day’s stock market movements, of course, can easily be reversed the next day. But market analysts still noted the convergence of arguably Washington’s most tumultuous week in years and the market swoon.
“The market is knee-capping Trump because of his constant crises, that now look potentially terminal,” said Eric Schiffer, chief executive of The Patriarch Organization, a Los Angeles-based private-equity firm. “The froth came from the belief that tax reform was coming, infrastructure was coming and trade adjustments were coming. With Trump under immense fire, all of those things go into suspended animation.”
Crisis has engulfed Trump’s White House over the past week, starting with the president abruptly firing CIA Director James Comey, who received the news by seeing it on a national television broadcast. Trump later said he was thinking of the Russia controversy when he decided to fire Comey.
The following day, Trump hosted the Russian foreign minister and ambassador in the Oval Office. During that meeting, Trump shared highly classified information with the Russian envoy, which U.S. officials said put in jeopardy a key source of intelligence on the Islamic State.
And by Tuesday, tensions ramped up even further after reports emerged that Trump had asked Comey to drop his investigation into former national security adviser Michael Flynn’s relationship with Russia, according to private notes Comey kept recounting the exchange.
On Wednesday, stocks dropped and foreign currencies gained against the U.S. dollar. The Standard & Poor’s 500-stock index was off 1.8 percent, Nasdaq was down 2.6 percent, and the Russell 2000 gave up 2.5 percent in trading on Wednesday.