US stock futures traded lower in early pre-market trade. The CBOE Volatility Index jumped more than 8 percent as of 7:53 a.m.in NY.
The S&P 500 and the Dow notched their biggest one-day fall since September 9 as investor hopes for tax cuts and other pro-business policies faded after reports that U.S. President Donald Trump tried to interfere with a federal investigation set off alarm bells on Wall Street.
The U.S. dollar index touched its lowest since early November on Tuesday, hurt by weaker-than-expected U.S. housing data and concerns after political turmoil once again hit Washington. The U.S. currency now sits at its lowest level since the day of Trump's shock win, a retracement some blame on perceptions his legislative agenda faces deeper challenges.
At 10:46 a.m. ET (1446 GMT), the Dow Jones Industrial Average was down 234.47 points, or 1.12 percent, at 20,745.28, the S&P 500 was down 24.18 points, or 1.01 percent, at 2,376.49 and the Nasdaq Composite index was down 83.65 points, or 1.36 percent, at 6,086.22.
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Both the Dow and S&P 500 fell below their 50-day moving average for first time since late April.
"The bull market is not over by any means, but between the political stuff and the fact that the next earnings season is three months away, there's going to be a lack of motivation", said Donald Selkin, chief market strategist at Newbridge Securities in NY. Real-estate was the only one of 11 groups in the S&P 500 to advance. The S&P began the session by opening 0.74 percent lower, the largest gap down since March 30, 2009, when the index suffered a 0.84 percent drop at the start of trading.
Those pledges had helped fuel a record-setting post-election rally on Wall Street. S&P 500 e-mini futures dropped as much as 0.7 percent overnight before paring the slide to 0.4 percent 90 minutes before the open.
At almost 18 times forward earnings, the S&P 500 trades at a significant premium to its long-term average valuations of 15 times, according to Thomson Reuters data.
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The market is getting nervous.
Prices of bonds, seen as safe-haven assets, rallied, while yields were on track for their biggest daily percentage drops since July.
A rally in the euro was reinforced by dollar losses, prompted by reports that U.S. President Donald Trump disclosed highly sensitive intelligence information to senior Russian officials at a meeting last week. The dollar bought 112.35 yen, well down from recent peaks above 114 yen seen last week.
Oil prices traded higher as Brent crude futures rose 0.72 percent to trade at $48.92 per barrel, while US WTI crude futures gained 0.53 percent to trade at $48.92 a barrel. Crude futures added 0.3 percent in NY, reversing an earlier 1.3 percent loss, before the release of USA government data on oil inventories and Iraq, together with non-OPEC nation South Sudan, backed the extension of supply cuts to balance the market. The FTSE 100 index of leading British shares was 0.1 percent lower at 7,519 and near all-time highs.
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Spot gold added 0.5 percent to $1,236.91 an ounce.