(Reuters) – U.S. stocks fell on Friday after ABC News reported former national security adviser Michael Flynn was prepared to tell investigators that Donald Trump directed him to make contact with Russians during last year’s presidential elections.
Wall Street’s main indexes all fell by more than 1 percent after the report, which cited an unnamed Flynn confident and added to concerns about President Trump’s exposure to a probe into Russian meddling in last year’s campaign.
But investors quickly took back some of those losses, buoyed by a promise by Senate leader Mitch McConnell that he had enough votes to pass the Republicans signature tax bill, which includes major incentives for corporate America.
By 12.17 p.m. ET (1717 GMT), the Dow Jones Industrial Average and the S&P 500 were down 0.5 percent and 0.7 percent, respectively, on the day.
“We have to point to something that is new and that would be the Flynn announcement,” Art Hogan, chief market strategist with Wunderlich Securities in New York.
“The problem is we don’t know exactly what he’s going to say. That’s the unknown and the market doesn’t like to try to price unknowns. We have an information vacuum.”
U.S. stocks have been rising all year, helped by hopes that Trump and a Republican-controlled Congress would pass business-friendly measures to free up more growth and investment in an economy already growing solidly.
A fall back in major tech stocks on Wednesday, however, added to hints that a long-awaited halt to the market’s eight-year long rally could also be in the offing.
The S&P 500 .SPX has posted a 1-percent daily loss only four times in 2017.
All the major S&P sectors barring energy .SPNY were down. The CBOE Volatility index .VIX, Wall Street’s fear gauge, jumped to its highest in more than three months.
“They (investors) read those headlines and immediately you got massive activity coming through – it’s not low volume, it’s high volume,” said Joe Saluzzi, co-manager of trading at Themis Trading in New Jersey.
“You are seeing gold markets react the other way, you are seeing the safety bets come on.”
Declining issues outnumbered advancers on the NYSE by 1,815 to 1,057. On the Nasdaq, 2,150 issues fell and 727 advanced.
The Dow Jones Industrial Average .DJI was down 136.01 points, or 0.56 percent, at 24,136.34 and the S&P 500 .SPX 19.06 points, or 0.72 percent, at 2,628.52. The Nasdaq Composite .IXIC fell 74.00 points, or 1.08 percent, at 6,799.97.
Reporting by U.S. stocks team; editing by Patrick Graham and Bernard Orr