Wall Street fell on Friday, whipsawed by developments with a probe into Russia’s alleged involvement in the U.S. election as well as with progress on a tax bill in Congress.

Major indexes ended lower after an ABC News report that former national security adviser Michael Flynn was prepared to testify that before taking office President Donald Trump had directed him to make contact with Russians.

The benchmark S&P 500 was down as much as 1.6 percent and the Dow plunged 350 points following the report. Flynn pleaded guilty on Friday to lying to the FBI about contacts with Russia's ambassador.

The Dow Jones Industrial Average fell 40.76 points, or 0.17 percent, to 24,231.59, the S&P 500 lost 5.36 points, or 0.20 percent, to 2,642.22 and the Nasdaq Composite dropped 26.39 points, or 0.38 percent, to 6,847.59.

But stocks recouped the bulk of their initial losses, after U.S. Senate Republicans said they had enough support to pass a sweeping tax overhaul.

The Senate news was the latest sign of progress for a tax bill being closely watched by investors, with hopes that significant corporate tax cuts will further fuel Wall Street’s record-setting rally.

Meanwhile, the ABC Trump-Flynn report added to a volatile day of political news which saw shares fall initially in New York on concerns over the passage of Trump’s tax bill through the Senate.

ABC News’ @BrianRoss reports that Flynn is prepared to testify President Trump directed him to make contact with Russians https://t.co/Mtt1n8DYi0 — Joy Lin (@joyindc) December 1, 2017

Reuters has not verified the ABC News report, which cited a Flynn confidant. Flynn pleaded guilty after being charged with lying to the FBI about his contacts with Russia’s ambassador to the United States.

“This Flynn thing threw everything for a loop. We had that still against the backdrop of tax reform,” said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago.

“We are at all-time highs so sometimes when you do get news that’s of a nature where people want to sell, it gets a little bit overdone,” Kinahan said.

Steep sell-offs have been a rarity on Wall Street this year. The S&P 500 has closed down by at least 1 percent only four times in 2017.

Progress with the tax legislation in the Senate had helped buoy stocks this week, as well as drive a rotation into those areas that seem poised to benefit from lower corporate taxes.

“We’ve kind of gotten used to the drama in the White House,” said Rob Stein, CEO of Astor Investment Management in Chicago. “Whether or not they prove that there are Russian relationship ties, that doesn’t have a long-term effect on the value of the stock market.”

“Now we have an economy that’s accelerated in growth...A lot of the stocks that have been ignored in the last couple of years could become bargains,” Bradshaw said.

The S&P has rallied 18 percent this year, boosted by solid global economic data and strong U.S. corporate earnings. But with investors optimistic about some aspects of Trump’s domestic agenda, especially tax cuts, news involving his administration has periodically rattled markets.

“We’ve kind of gotten used to the drama in the White House,” said Rob Stein, CEO of Astor Investment Management in Chicago. “Whether or not they prove that there are Russian relationship ties, that doesn’t have a long-term effect on the value of the stock market.”

Indeed, the initial abrupt selloff prompted Wall Street’s favorite reaction in recent months: “Buy the dip.”

Energy was the best-performing sector, rising 0.8 percent. Oil prices settled up slightly, the day after OPEC and other crude producers agreed to extend output cuts until the end of 2018 to tighten global supplies and support prices.

Advancing issues outnumbered declining ones on the NYSE by a 1.02-to-1 ratio; on Nasdaq, a 1.54-to-1 ratio favored decliners.

Meanwhile, the 10-year Treasury yield fell five basis points Friday and Bloomberg’s dollar index slid as investors flocked to the yen.

Haven assets surged after the former national security adviser agreed to provide cooperation, with the heaviest selling in equity coming after the ABC report.

Markets had rallied this week, propelling the Dow past 24,000, on speculation tax cuts will supercharge already strong economic growth. That narrative that took over in afternoon trading as stocks marched steadily higher to nearly erase the drop.

“For the first time in a long time, the political risks are starting to seep into the capital markets,” Chris Harvey, head of equity strategy at Wells Fargo & Co. “There is some real possibility that Trump has some issues and the market is pricing in those issues today. That also seeps into taxes.”

Flynn’s plea is a major step for Mueller’s quickly advancing investigation. Mueller has already charged Trump’s former campaign chairman Paul Manafort and his deputy over their earlier business activities, and secured a guilty plea from George Papadopoulos, a campaign adviser who pursued Russia’s help during last year’s election. Papadopoulos is cooperating with the probe.

For much of the day the Flynn news overshadowed the Senate tax bill as it headed for a round of marathon votes, with the chance of passage remaining high even after leaders suspended voting yesterday after a key compromise to win a majority had collapsed.

“All of a sudden we get this news out and kind of have the rug jerked out from underneath the Trump Trade,” Gary Bradshaw, a portfolio manager at Hodges Capital Management in Dallas, said by phone. “I’m going by the seat of my pants based on what I’m hearing but we’ve had this great rally in the market, and now we have this other issue. We’ve had the rug jerked out from underneath us.”

(Newsmax wire services Reuters and Bloomberg contributed to this report).