The US stock market suffered its second-biggest slide of the year on Thursday, as president Donald Trump’s travails and a terror attack in Barcelona undermined investor confidence on Wall Street.
The S&P 500 index, the main US equity benchmark, ended the day down 1.5 per cent, its biggest decline since May 17 and only the fourth decline of more than 1 per cent all year, sending the gauge to a one-month low.
Mr Trump’s handling of the white supremacist violence last week has plunged Washington back into turmoil, triggering the disbandment of two of the president’s advisory councils of business leaders and elevating doubts about the presidents’ ability to push through his investor-friendly agenda.
And US markets closed at their lows following the news a van ploughed into a crowd of people in Barcelona, killing 13 people in what police confirmed was a terrorist attack.
JJ Kinahan, chief market strategist at TD Ameritrade, noted that markets had started off on a weak note thanks to a batch of underwhelming corporate earnings results.
“The earnings disappointment of this morning has snowballed,” he said, adding that “the political fears and Barcelona situation added to the fear and selling pressure.”
Previously high-flying technology shares and financial stocks — the latter among the biggest initial beneficiaries from the “Trump bump” that markets enjoyed after Mr Trump’s November presidential victory — suffered the biggest hits, falling nearly 2 per cent and 1.7 per cent respectively on Thursday.
But no sector was spared in the sell-off. Real estate and utilities, two traditionally defensive sectors, both fell about 0.7 per cent. The 10-year Treasury yield dipped 4 basis points to 2.18 per cent as investors sought out the safety of US government debt.
“Between the early rumours that [National Economic Council head Gary] Cohn might resign, the drop in domestic equities and the Barcelona terror attacks that refocused investors on the geopolitical tensions, there was ample flight-to-quality motivation,” Ian Lyngen, an analyst at BMO Capital Markets, said in a note to clients.
Many investors had already grown increasingly worried that stock market valuations were beginning to look over-extended, after the S&P 500’s climb to successive record highs this year. Investors from Pershing Square’s Bill Ackman to Pimco’s Dan Ivascyn have recently said they have bought protection against any turbulence.
Hope that the White House would be able to emerge from a political quagmire caused by an investigation into the Trump campaign’s ties to Russia have faded, and with it the chances for tax cuts that Wall Street had pencilled in for 2017.
The US government also faces a series of challenges this autumn, such as negotiations to raise the US debt ceiling to avoid a disastrous default on its debts. While the debt ceiling is widely expected to be raised without a hitch, given the possible consequences, the drawn-out political drama has dented investors’ faith.
“We’re certainly sympathetic to the apprehension regarding the composition of the administration and the spate of high level defections [from the advisory councils] has raised a number of questions about Trump’s effectiveness as the budget and debt ceiling debates quickly approach,” Mr Lyngen said.
“The August recess was expected to be a time for members of Congress to return to their home districts and solidify support before addressing the more weighty issues on the docket this fall, but we cannot help but imagine those in the GOP won’t be engaged in more ‘damage control’ than anticipated,” he added.