Messy political developments in Washington, D.C., spilled into financial markets on Wednesday in the most punishing day for stocks of 2017.
The S&P 500 was down 1.8%, the Dow Jones Industrial Average fell 1.8%, or 372 points, and the Nasdaq slid 2.6%. The S&P 500's loss was the worst since Sept. 9.
The Donald Trump scandal that provoked Wednesday's selloff was the second of the week: A New York Times report that Trump asked former FBI Director James Comey to shut down the federal investigation into since-ousted National Security Adviser Michael Flynn. Flynn was forced to resign on Feb. 13 amid questions over his contact with the Russian ambassador and discussions of U.S. sanctions.
Comey wrote a memo detailing his conversation with the president shortly after it took place, according to the Times, which cited two people who read the document. It's part of a paper trail Comey created documenting what he believed to be improper efforts to influence the investigation. The president fired Comey, who was heading an investigation into the Trump campaign's alleged ties with Russia, early last week.
The Times report may present the clearest evidence yet that the president has tried to influence government investigations into links between Russia and the Trump campaign.
"The problem is not the turmoil, not the potential constitutional issues, and not even the ongoing tug of war between Republicans and Democrats," said Brad McMillan, chief investment officer for Commonwealth Financial Network. "The problem is that the markets have expected significant policy action on the economy, and such action is looking less likely by the day, given the many political items that need to be resolved first."
Financial stocks were the worst performers on Wednesday. JPMorgan (JPM - Get Report) , Wells Fargo (WFC - Get Report) , Bank of America (BAC - Get Report) , HSBC (HSBC) , Citigroup (C - Get Report) , and Goldman Sachs (GS - Get Report) were sharply lower, while the Financial Select Sector SPDR ETF (XLF - Get Report) slid 3.2%.
Only a day earlier, news broke that Trump had divulged highly classified intelligence to Russia during a meeting last week, according to a report from The Washington Post. Trump reportedly shared top-secret information on the fight against ISIS with Russian Foreign Minister Sergey Lavrov and Russian Ambassador Sergey Kislyak in a meeting in which U.S. media was barred. The meeting had also raised eyebrows because it occurred just a day after Trump fired Comey.
While markets have rallied since the November election on Trump's pro-business agenda, the latest flood of distractions appears to have put progress on tax reform on the backburner. The scandals also distract from Trump's first official trip abroad as president later this week. He is set to travel to Saudi Arabia, Israel, and Vatican City.
"Stocks have taken to selling off on bad Trump-related news, first with Comey (and now again with Comey) and then with the alleged comments made to a Russian diplomat," Brian Sozzi wrote on our premium site for investors, Real Money. "This reaction by stocks could indicate the first signs of investors losing confidence in what Trump could get accomplished."
Others argued that this could be a natural "buy-the-dip scenario," given that stocks recently reached all-time highs.
"As investors turn to safe havens like gold, a pullback can present buying opportunities," Mike Loewengart, vice president of investment strategy at E*TRADE, wrote in a note. "Further, this isn't the first negative headline we've seen and I wager that most feel it won't be the last. While no one knows what the future holds, if the market has illustrated anything in the past few months, it's that resiliency to political headwinds may be a crowning attribute."
Safe-haven assets were higher on Wednesday. Gold prices climbed 1.9% to $1,259.50 an ounce, and silver prices increased 0.9% to $16.89 an ounce.
Crude prices surged after U.S. inventories declined for the sixth week in a row. Stockpiles fell by 1.8 million barrels in the week ended May 12, according to the Energy Information Administration. Gasoline and distillate stockpiles also dropped.
Oil settled at two-week highs earlier in the week after energy ministers from Russia and Saudi Arabia surprised markets by calling for an extension to an oil production-cap agreement. An extension to the OPEC deal will be the main point of conversation when the 13 member countries meet in Vienna on May 25. The current agreement, established last November, is set to expire at the end of June.
West Texas Intermediate crude closed 0.8% higher at $49.07 a barrel on Wednesday, its highest settlement in nearly three years.
In earnings news, Target (TGT - Get Report) increased 1% after topping quarterly estimates. The department store chain earned $1.23 a share, up from $1.05 a share in the year-ago quarter. Adjusted earnings of $1.21 a share topped consensus of 91 cents a share.
Sales of $16.02 billion came in higher than a target of $15.62 billion. Second-quarter profit guidance of 95 cents to $1.15 a share compared with analysts' target of $1 a share.
Urban Outfitters (URBN - Get Report) declined 4.2% after disappointing quarterly sales. Revenue inched 0.2% lower over its recent quarter to $761 million, falling short of consensus by $8.8 million. Net income of 10 cents a share missed estimates by 6 cents.
American Eagle Outfitters (AEO - Get Report) tumbled 14.7% on disappointing guidance for its second quarter. Earnings are anticipated between 15 cents and 17 cents, below a target of 23 cents, while same-store sales are expected to come in flat or slightly lower. Analysts expected same-store sales to grow 0.5%. First-quarter profit came in short of estimates, though the teen retailer did post surprise growth in same-store sales.
More than 90% of S&P 500 companies have reported earnings so far this season. Of those, nearly 75% have exceeded earnings expectations, above the historical average of 64%, according to Thomson Reuters. On the topline, 63% have topped revenue estimates, a narrower beat than the average rate of 59%.