Economist's Insights

Yesterday’s Trading Activity – Markets Continue to Agonize over Political Chaos

Aug 17, 2017

Treasurys rallied Thursday as U.S. stocks sold off sharply and steadily for the entire session. Investors’ flight out of riskier assets pushed the VIX – known as the equity fear index and which measures expected future volatility – up 32%. The Dollar was relatively stable but the Yen benefited from the heightened uncertainty. Rumors of Gary Cohn’s resignation and the terror attack in Barcelona – both under the cloud of Wednesday’s dissolution of two of President Trump’s advisory groups – drove the flight to quality. Rumors that Gary Cohn, Chief Economic Advisor to the President, intended to resign were quickly debunked but the damage was done. The ever-increasing tensions in Washington continue to call into question the viability of achieving any aspect of the Republican’s agenda. Shortly after the Cohn rumors, news broke of the terrorist attack in Barcelona that resulted in a double-digit death count and scores more wounded. The Dow dropped 1.2% as the S&P tumbled 1.5% and the Nasdaq sank nearly 2%; the second worst day for the Dow and S&P since last September. The weakness was broad-based with only 23 of the 505 companies comprising the S&P positive on the day. The 2-year yield fell 3.1 bps to 1.30%, the 5-year yield shed 3.1 bps to 1.75%, and the 10-year lost 3.7 bps to 2.18%; the lowest 10-year yield since June 26 and the 14th lowest mark since the week of the election.