Closing Market Summary: Stocks Sell Off Following NY Times ArticleEquities sold off on Wednesday following a New York Times article that claims President Trump asked former FBI Director James Comey in February to shut down the bureau's investigation of former National Security Advisor Michael Flynn. The S&P 500 posted its worst one-day performance in nearly a year, losing 1.8%. The Dow (-1.8%) finished in line with the benchmark index while the Nasdaq and the Russell 2000 took the biggest hits, losing 2.6% and 2.8%, respectively. The major indices all closed at their session lows.
The NY Times cited a memo that James Comey wrote following a February 14 meeting with President Trump in the Oval Office. The White House has denied that Mr. Trump asked Mr. Comey to end the investigation with White House Press Secretary Sean Spicer saying the account relayed in the NY Times is "not accurate." Nonetheless, some lawmakers and legal experts believe this alleged incident may qualify as an obstruction of justice, which is considered an impeachable offense.
For investors, the concern at hand is that an investigation into the matter could derail tax reform efforts, which have already been slow to get on track. The stock market has risen sharply since the election, bolstered to a large degree by the belief that tax reform, deregulation, and infrastructure spending will fuel stronger economic and earnings growth.
That view has manifested itself in stretched equity valuations; therefore, the assumption today that the Trump Administration's pro-growth policy agenda could be at risk of not coming to fruition drove a broad-based selling effort as valuations got called into question.
The financial sector (-3.0%), which led the stock market's post-election rally, suffered the biggest loss today among the economic sectors. A flattening of the yield curve didn't help matters for the financial sector as it triggered worries about a compression of net interest margins and banks' earnings prospects.
U.S. Treasuries finished solidly higher across the board with the back end of the yield curve leading the way. The 10-yr yield dropped eleven basis points to 2.22% while the 2-yr yield fell six basis points to 1.24%.
The top-weighted technology sector settled just behind the financial group with a loss of 2.8%. Mega-cap technology stocks like Apple (AAPL 150.25, -5.22), Microsoft (MSFT 67.48, -1.93), Facebook (FB 144.85, -4.93), Alphabet (GOOGL 942.17, -22.44), and Amazon (AMZN 944.76, -21.31) were all on the defensive, posting losses between 2.2% and 3.4%.
The PHLX Semiconductor Index fared even worse, dropping 4.4% as profit-taking hit hard in the semiconductor industry. Including today's decline, the PHLX Semiconductor Index is still up 61.2% over the last 12 months.
Outside of financials and technology, the industrials (-2.1%) and materials (-2.1%) groups exhibited relative weakness, but most of the remaining laggards finished roughly in line with the broader market. The energy sector was an exception, losing only 1.1% thanks to crude oil's positive performance ($49.04/bbl, +0.8%).
The energy component jumped from its flat line to a solid gain following the weekly crude inventory report from the Energy Information Administration (EIA), which showed that U.S. crude stocks declined by 1.8 million barrels for the week ended May 12. While that's less of a decline than the consensus expected (-2.3 million barrels), it was seen as a positive in light of Tuesday's disappointing API reading, which showed a build of 0.9 million barrels.
In addition to energy, three sectors --real estate (+0.6%), utilities (+0.3%), and consumer staples (-0.2%)-- settled notably ahead of the broader market, benefiting from the drop in interest rates and a defensive rotation.
The CBOE Volatility Index (VIX 14.41, +3.76) spiked a whopping 35.3% amid a heightened expectation for near-term volatility in the wake of the NY Times article. The U.S. Dollar Index (97.39, -0.71, -0.7%), meanwhile, slipped to its lowest level since before the U.S. presidential election. The greenback lost 0.7% and 1.9%, respectively, against the euro (1.1157) and the Japanese yen (110.93).
On the data front, the weekly MBA Mortgage Applications Index decreased 4.1% to follow last week's 2.4% increase.
On Thursday, investors will receive several economic reports, including Initial Claims (consensus 240,000) at 8:30 ET, the Philadelphia Fed Index for May (consensus 18.5) at 8:30 ET, and April Leading Indicators (consensus 0.4%) at 10:00 ET. In addition, Walmart (WMT 75.12, +0.01, +0.01%) will report its quarterly earnings results before the open.
- Nasdaq Composite +11.7% YTD
- S&P 500 +5.3% YTD
- Dow Jones Industrial Average +4.3% YTD
- Russell 2000 -0.1% YTD