A day after traders broke out celebratory hats marking the Dow Jones Industrial Average crossing 24,000 for the first time, markets tumbled Friday, as news that President Donald Trump's former national security adviser pleaded guilty to lying to the FBI, and would cooperate with authorities investigating Russian interference.
Stocks fell the most in three weeks after Michael Flynn pleaded guilty to lying to federal agents, unnerving financial markets that have been rallying on the prospects for massive tax cuts and accelerating economic growth.
The Dow Jones, which set records Thursday, fell as much as 350 points following reports that Flynn would implicate President Donald Trump in his communications with Russians. The Nasdaq fell as much as 120 points.
The S&P 500 Index fell, too, while gold futures surged more than 1 percent and 10-year Treasury yields plunged nine basis points. Bloomberg’s dollar index sank as investors flocked to the yen.
Markets recovered somewhat later Friday on news that Senate Republicans had enough votes to pass a tax reform bill that would significantly cut the corporate tax rate. But Flynn's agreement to cooperate with Special Counsel Robert Mueller resonated throughout the day.
"The losses that we saw right when the Flynn information came out — the market just hit an air pocket," said Phil Orlando, chief equity strategist at Federated Investors. "The market is trying to sort this out and maybe it doesn't think it's quite as bad as the initial shock when the headlines crossed."
The Dow closed at 24,230, down 41 points or .18 percent, while the S&P ended the day at 2,642, down 5 points or .21 percent. The Nasdaq closed at 6,847, down 26 points or .38 percent.
On Friday morning, financial markets quickly assumed a risk-off stance, with haven assets surging after the former national security adviser agreed to provide cooperation that promises to take Special Counsel Robert Mueller deep into Donald Trump’s administration.
“All of a sudden we get this news out and kind of have the rug jerked out from underneath the Trump Trade,” Gary Bradshaw, a portfolio manager at Hodges Capital Management in Dallas, said by phone. “I’m going by the seat of my pants based on what I’m hearing but we’ve had this great rally in the market, and now we have this other issue. We’ve had the rug jerked out from underneath us.”
Earlier Flynn, who was fired as President Donald Trump’s national security adviser after revelations that he lied about his communications with Russia’s ambassador, was charged for lying to federal agents about the contact.
The news overshadowed the Senate tax bill as it headed for a round of marathon votes Friday, with the chance of passage remaining high even after leaders suspended voting yesterday after a key compromise to win a majority had collapsed.
“I don’t know if it’s shocking, at least not since Flynn cut off communications a couple weeks ago,” Jim Paulsen, chief investment strategist at Leuthold Group LLC, said by phone. “But as far as the markets, markets don’t like volatility of any kind and this creates the possibility of uncertainty in the White House.”
There are also reports the White House is weighing replacing Secretary of State Rex Tillerson, a week before Congress must act to prevent a partial government shutdown.
With assistance by Randall Jensen. The Associated Press and Chicago Tribune contributed.