As Donald Trump faces one of the toughest moments of his presidency, Wall Street analysts are recommending that investors exercise caution before making any rash decisions.
U.S. stocks fell the most since March and Treasuries rallied with gold as investors sought havens following reports that a memo written by then-FBI Director James Comey alleges that the president asked him to drop an investigation of former National Security Adviser Michael Flynn, which could be obstruction of justice. The administration released an emailed statement denying Comey's version of events.
So far, markets have been focusing on what is playing out away from Washington, but that trend may be coming to an end as some analysts warn the post-election rally that was supported by faith in Trump's tax-cutting, deregulating agenda, might be fizzling out.
Here's a roundup of what Wall Street is saying:
Issac Boltansky, Compass Point
The Trump Trade optimism was already tempering as markets became reacquainted with the "painfully slow" legislative process, but now markets are forced to consider what valuations should look like if the administration's agenda doesn't materialize. Client questions have shifted since last night to considerations of special prosecutors, impacts on nominations, even impeachment; too early to fully contour issue's legal/political impact.
It's too early to throw in the towel on tax cuts before the midterms, but I am concerned that there could be a meaningful market reaction if these headlines persist and the House Ways & Means Committee fails to show some semblance of policy cohesion during the two upcoming hearings.
Peter Cecchini, Cantor Fitzgerald
"To state the obvious, this potentially throws a wrench into implementation of reflationary, pro-growth policies like infrastructure spending, tax reform, and financial deregulation. How is it then, that the reflation narrative, which was based on swift implementation of such policies and which graced almost every headline for months, is not being rebuffed with equal vigor? Both the 5-year and 10-year break evens show how quickly inflation has stalled."
