US stock markets were set for their worst day in months over fears political controversy surrounding President Trump will blunt his ability to deliver tax and regulatory reform.
Wall Street’s three main indexes fell more than 1.7%, and the dollar erased most gains made since his election.
The S&P 500 was 1.8% off at 2,357 points, its biggest one-day fall since September.
Optimism over the Trump administration’s pro-growth policies had driven a sharp rally in US stocks since his election in November.
But the current row over the firing of FBI director James Comey, and growing scepticism about the administration’s ability to push major policies through Congress any time soon has cast a cloud over markets.
“We’re getting into stall mode because of the early expectations for the Trump presidency. It’s all being put well on the back burner and even off the stove. It’s kind of worrisome as it could take time to muddle through this,” said Joseph Benanti, managing director, at share trader Rosenblatt Securities, in New York.
Although the Oval Office has furiously denied wrongdoing over Mr Comey’s sacking and claims Mr Trump passed on sensitive intelligence information to Russia, some commentators have even spoken about impeachment.
“Calls for President Trump to be impeached are growing louder and that has created a long overdue sense of fear in markets,” said market analyst Jasper Lawler at London Capital Group.
Mike van Dulken, head of research at Accendo Markets, said investors are having to “digest the latest real-life episode of House of Cards”.
At the very least, analysts say, it will all be a distraction for the administration and may stall the introduction of spending plans and market-friendly legislation.
However, the Republican Speaker of the House of Representatives, Paul Ryan, insisted that the administration’s legislative agenda was not becoming paralysed, blaming “some people out there who want to harm the president”.
Financial stocks, big risers over the last few months, bore the brunt of Wednesday’s share price falls. Goldman Sachs fell more than 5% and JP Morgan Chase fell 3.8%.
Eight of the 11 major S&P 500 sectors were lower. However, utilities and real estate sectors – preferred investment options in times of uncertainty due to their slow but predictable growth – were higher.
Gold, another haven asset, rose 0.9%, and the so-called “fear index”, the VIX, reached its highest level in nearly one month.
On the currency markets, the dollar was down 0.6% against the euro and 0.35% lower against the pound. The greenback fell almost 1.9% against the Japanese yen, which has been a traditional haven for risk-averse investors.
The dollar index, which tracks the value of the currency against a basket of currencies, is down 0.6% to 97.5, its weakest since November.
Jeremy Bryan, Gradient Investments, said the uncertainty could continue through the summer and beyond. “We’re largely through the earnings season, so political uncertainty is probably going to be the largest source of risk in the next three to six months,” he said.