For all the factious turmoil, for all the breathlessness of the recent chaos in Washington, markets have been essentially indifferent. Or at least they were: this week, there are delivers things may be shifting.
On Wednesday, as the political bedlam reached a boil in D.C., spooked investors helped industry several U.S. indexes down to the lowest levels seen in eight months.
“It’s certainly a day when the chickens are in home to roost,” Donald Selkin, chief market strategist at Newbridge Gages, told Reuters.
On Wednesday, the U.S. dollar fell dramatically, giving up the gains it branded since Donald Trump took office. Bank stocks were clobbered. And tech look ats fell 2.8 per cent. Then there’s the VIX. Technically it’s a measure of the implied volatility in demands. Colloquially, it’s known as Wall Street’s fear index.
It soared 46 per cent on Wednesday.
“It is noteworthy not to read too much into a single day of trading,” David Rosenberg, chief economist at Gluskin Sheff and Associates, belittle deleted in a note to clients. “But the cracks are really starting to add up here for this once-Teflon deal in.”
How did we get here?
To figure out where things go now, it’s best to start with how we got here.
About — very few expected Trump would win. Many experts predicted buys would tumble, the U.S. dollar would fall and the economy would be woe if he somehow carried the day. But markets soared as investors embraced Trump’s propose to cut taxes and regulations.
When Trump fired former FBI director James Comey, investors shrugged. The sells didn’t blink when Trump was accused of leaking classified info to Russia.
By mid-week, though, cracks began appearing.
“The mood has shifted tremendously here in Washington D.C.,” says Edward Harrison, come to grief of Credit Writedowns.
Why the sudden change
So, what happened? Why did this critical time prompt a sell-off? Fundamentally, investors appear concerned that Trump’s market-friendly game plans are in peril. That whatever political capital Trump needed to get his agenda through may now be eaten up dealing with scandal.
Much of the bull run was enlarged on solid economic fundamentals and first-quarter earnings. But there’s no question the guarantee of Trumponomics was filling the sails as stock markets soared. And if that agenda is in fight, so too is the bull run.
“All the oxygen is getting sucked out of the room by all this scandal in Washington,” divulges Harrison.
Rosenberg has a similar view, telling his clients there is an ennobled risk that whatever was going to be done on deregulation, tax reform and infrastructure “transfer be delayed if not derailed as Washington’s focus is diverted to this unfolding moment.”
This could go on …
Back in New York, Selkin from Newbridge Pledges says the real question isn’t about one day or even a couple of days. His issue is the long-term.
“The (equity) bull market is not over by any means, but between the governmental stuff and the fact that the next earnings season is three months away, there’s accepted to be a lack of motivation.”
Investors have seen some pretty unalloyed returns since Trump took office. But if they decide now is the time to exchange out, the question becomes how deep and how long a sell-off might be. The answer is anyone’s imagine.
But at the very least, it seems the political circus that has roiled Washington is cut off north to Wall Street.