Market Extra: Here’s what FBI raid on Trump lawyer’s office means for the stock market

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The stock market hates uncertainty, and the Federal Bureau of Investigation’s raid Monday of the office of President Donald Trump’s personal lawyer just introduced a fresh dollop of political doubt.

According to The Wall Street Journal, federal agents searched the office, home and Manhattan hotel room of Trump’s longtime attorney Michael Cohen. Cohen’s office later confirmed the raid, describing the search as “completely inappropriate and unnecessary.” The raid was first reported by the New York Times.

News reports said federal prosecutors received a referral from Special Counsel Robert Mueller, who is charged with probing ties between President Trump and Russian operatives. However, the Cohen search isn’t directly related to Mueller’s investigation, the reports said.

Trump angrily criticized the raid, calling it a “disgraceful situation” and “an attack on our country.”

The Times story on the raid broke just ahead of the closing bell and appeared to add to a late round of selling. The stock market suffered its worst final hour of trade in about 6 ½ years, with the Dow Jones Industrial Average DJIA, +0.19% already in a downtrend in the final 120 minutes of trade, shedding the lion’s share of its gains by the end of the session. The Dow, S&P 500 index SPX, +0.33% and the Nasdaq Composite Index COMP, +0.51%  wrapped up Wednesday barely in the green.

“The stock market dropped a lot today as soon as they heard the noise, you know, of this nonsense that was going on,” Trump said late Monday, according to pool reports. “It dropped a lot. It was up — it was way up. It dropped quite a bit at the end. That we have to go through that.”

The Times reported that the records seized relate to Cohen’s $130,000 payment to adult-film star Stormy Daniels, who alleges she had an affair with the president and was paid for her silence, as well as emails, tax documents and business records.

Here’s how a few market participants said the late-Monday news was setting up trade in the coming session, given Wall Street’s recent bout of volatility tied to trade war concerns between the U.S. and China.

Investors react to Trump attorney raid

“I am a little bit concerned about this because it doesn’t bode well for [Trump]. This is not what the market needs,” said Robert Pavlik, chief investment strategist and portfolio manager at SlateStone Wealth LLC.

That said, he cautioned that it shouldn’t influence investors’ long-term strategies

“Do I allow it influence my long-term view on the market? No,” he said.

Jack Ablin, founder and CIO at Chicago-based Cresset Wealth Advisors, said: “Clearly investors are looking at it as an important risk. I think everyone is trying to connect the dots here and figure out where this stuff ends.

“I think this nearly a 400-point reversal in the period of an hour or two, I would call this a dramatic turn of events. I think it seems like the FBI is tightening the ring fence around Trump” Ablin said.

John Manley, senior portfolio strategist at Wells Fargo’s WellsCap’s Multi-Asset Solution Team said the market’s last minute of trading reflecting a dislike of uncertainty.

When the FBI “pries the lid a little bit more, you never know what genie will jump out,” Manley said. “I don’t know what’s going to happen tomorrow,” he said.

The strategist said the violent swings in the market of late are representative of the nervous environment that has come to typify Wall Street trade in 2018, with the Cboe Volatility Index VIX, +1.30% trading near its historic average around 20, compared with the mostly placid action in 2017.