(Reuters) - U.S. stocks gave up early gains and turned sharply lower on Tuesday, led by a fall in financial shares as investors began to question the timeline for the implementation of the Trump administration’s pro-growth policies.
The Dow Jones Industrial Average .DJI fell 133.48 points, or 0.64 percent, to 20,772.38, the S&P 500 .SPX lost 15.33 points, or 0.65 percent, to 2,358.14 and the Nasdaq Composite .IXIC dropped 55.47 points, or 0.94 percent, to 5,846.06.
The S&P was on track for its largest daily percentage drop since Oct 11.
U.S. Treasury yields fell to three-week lows.
RICK MECKLER, PRESIDENT OF INVESTMENT FIRM LIBERTYVIEW CAPITAL MANAGEMENT IN JERSEY CITY, NEW JERSEY
“Yesterday’s political action, particularly the Comey testimony, I think pointed to the fact that there could be a lot of drawn out political infighting that could delay some of the pro-business ideas from being passed. I think periodically investors become nervous about it and look to take profits on what has been a big move to this point.”
“There just seems like there is so much drama in the government right now that I think it’s really starting to weigh on investors a little bit, particularly when they think about some of the business benefits as potentially being pushed out to later in the year or next year, or maybe not at all.
“A lot of the trading certainly has been momentum oriented and big gains have encouraged people to put money in for bigger gains. So it certainly is possible that if we could break down enough to actually make people think this is a more significant correction — after all, most of the corrections have been so short lived and such a small percentage that if anything it has just built further confidence that they are just temporary dips.”
“But if you could break through to a more significant downtrend, and I think it would have to be in the 2 to 3 percent range, combined with the fact that short term rates are rising, maybe that would cause investors to maybe take a pause in what has been a buy-the-dip mentality since the election.”
MARK KEPNER, MANAGING DIRECTOR AT THEMIS TRADING IN CHATHAM, NEW JERSEY:
“We’re in the open period between now and earnings season and the market is looking for something to hold onto and when you’re up at the high levels that we are, then little things can get the market working one way or the other. Oil is weak and that’s becoming more of a focus for the market since it broke $50.”
“There was a feel the Fed was going to possibly be more hawkish last week. That didn’t happen. Financials have been hit on that news.”
“You have this back and forth in Congress with the new healthcare plan and you have this belief that if the healthcare plan can’t pass then they can’t move on to taxes. There’s this feeling that if things don’t get done then maybe what the market has been anticipating gets held up.”
“We’re in this period of ‘find something to focus on’. Everything we just came out of, — earnings season, the Fed meeting, the jobs report. We’re now in a lull and there’s a lack of information, so you’re going to focus on what’s going on in Congress. … The market has been on such a big run since the election and with the absence of something to grab onto, it’s difficult to push things higher.”
“Politics is center stage. It’s running the market. If the market rallied on Trump’s pro growth policies and they’re in question then the market has to give something back. We’ve had slight sell offs here and there. Momentum has been building for a sell off,”
“We’re 48 hours from hearing a healthcare decision. This is probably as good a day as any to make that bet.”
“You heard Ryan speak today. I’m sure people are trying to read into his terminology … It sounded to me as if he was backing off a little bit on healthcare reform.”
“The market is trying to price in what setbacks they’ll have on tax reform and deregulation.”
BRIAN JACOBSEN, CHIEF PORTFOLIO STRATEGIST AT WELLS FARGO FUNDS MANAGEMENT IN MENOMONEE FALLS, WISCONSIN
“Republicans should have prioritized tax reform ahead of health care reform. They’re coming across as a motley crew rather than a party that can get things done. Without a political breakthrough, the market might have a hard time breaking through previous peaks.”
MICHAEL O’ROURKE, CHIEF MARKET STRATEGIST AT JONESTRADING IN GREENWICH, CONNECTICUT:
“The financials are selling off because the bond market rallied. The bond market has been rallying since the FOMC... I can see you have some type of asset allocation model that kicked in this morning, with people selling equities and buying Treasuries,
That’s what started things, and on top of it, we haven’t had a 1 percent down day (in the S&P 500) since October.
Plus you have the ACA (vote) on Thursday and obviously if that doesn’t go well, the president’s tax plans get derailed. So people are just saying it’s a good time to get a little bit more defensive, take some profits.”
ART HOGAN, CHIEF MARKET STRATEGIST AT WUNDERLICH SECURITIES IN NEW YORK:
“In general we’ve had enthusiasm with the incoming administration loosely based on the promise of progress and pro-business policies.
“So when reality comes crashing in, that things still take time in Washington, like the repeal and replace of the Affordable Care Act, it pushes out the other agenda items.
“If the Affordable Care Act gets complicated and takes longer, then the tax reform takes longer and I think the market has been pricing in tax reform as something to accomplish in 2017 and that looks like it’ll be pushed to 2018.”
RICHARD SICHEL CHIEF INVESTMENT OFFICER OF PHILADELPHIA TRUST CO. IN PHILADELPHIA
“Maybe there’s a thought that the catalyst for higher prices on financial stocks going ahead will come with higher rates and less regulation, but there may be impatience coupled with profit taking at this point.”
STAN SUN, INTEREST RATES STRATEGIST AT NOMURA SECURITIES INTERNATIONAL IN NEW YORK
“The equity market is tanking and we are responding. It’s a flight-to-quality move, and people have been adding to the trade in the last 30 minutes.”
MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER AT ALLIANZ, SAID:
“Led by financials and industrials, the stock sell-off suggests that investors may be less confident that the Trump administration’s pro-growth announcements will be translated into policy implementation soon. Rates and the dollar appear to share this concern.”
CHARLIE MCELLIGOTT, MANAGING DIRECTOR AND HEAD OF US CROSS-ASSET STRATEGY AT RBC CAPITAL MARKETS:
“The current and ongoing breakdown in the U.S. dollar is representative, driving some short-term and nascent deleveraging of legacy ‘reflation’ trades, with DXY through the psychological 100 level.”
“The ‘U.S. dollar short’ case is now tactically ‘en vogue’ as per the sudden-death of the central bank “policy divergence” story last week - which had been the primary Dollar bull-case driver over the past year. With central banks synchronizing their tightening messages (recall Fed hike, PBoC increasing 7-, 14- and 28- day rev repo rates and ECB hawkish commentary all in the same 24 hr period last week) the dollar’s unilateral ascent has at the very least been paused, if not reset.”
Americas Economics and Markets Desk; +1-646 223-6300