The Nasdaq on Wednesday saw its worst one-day decline since the day after U.K.’s vote to exit from the European Union rattled markets, as turmoil in Washington cast doubt on President Donald Trump’s pro-growth agenda that had helped to drive stocks to records.

Tuesday’s selloff in the technology-laden benchmark, which has represented enthusiasm for assets perceived as risky, highlighted a broad market unraveling across much of the globe.

The S&P 500 index SPX, +0.03% and the Dow Jones Industrial Average DJIA, -0.14% had their worst sessions since Sept. 9.

Political uncertainty sent the S&P 500 index down 43.64 points, or 1.8%, to 2,357.03. Financials, which had been among the biggest beneficiaries of Trump’s market-friendly agenda, were the biggest losers, down more than 3%.

The Dow sank 372.82 points, or 1.8%, to finish at 20,606.93. Goldman Sachs Group Inc. GS, +0.06% tanked 5.3% and J.P. Morgan Chase & Co. JPM, -0.56% skidded 3.8%.

The Nasdaq Composite Index COMP, +0.38% , which closed at a record for a second session in a row on Tuesday, coughed up 158.63 points, or 2.6%, to end at 6,011.24.

Small-capitalization stocks also suffered withering losses, with the Russell 2000 index RUT, -0.62% falling 2.8% to 1,355.89, marking its worst single-session drop since Sept. 9 and its lowest closing level since April 13.

Wall Street witnessed a “typical” flight to safety spurred on by fear, said Ian Winer, head of equities at Wedbush Securities. “On a fundamental level investors are constantly assessing the likelihood of tax reform and regulatory reform into the multiple they put on the market. Whenever more questions arise on timing of these policies, the market tends to sell off because we add risk,” he said.

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The CBOE Volatility Index VIX, -2.49% , which measures implied volatility on the S&P 500 30 days in the future, spiked 46% to 15.59, its biggest daily climb since after Brexit, or Britain’s vote to exit from the EU, in June.

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“Investors are more nervous today than they were yesterday so you are seeing a big bid in the bond market. So funds are reducing equities slightly today and moving into safety,” Winer said.

Uneasiness for global equities came after the New York Times reported that Trump in February asked then-director of the Federal Bureau of Investigation, James Comey, to stop his investigation into former National Security Adviser Michael Flynn.

The report also prompted some House Republicans to call for a further investigation and for the FBI to hand over documents related to communications between the president and Comey, whom Trump fired earlier this month.

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“The big selloff in banking stocks suggests that the market now believes that no tax or regulatory reforms are coming,” said Michael Antonelli, equity sales trader at Robert W. Baird & Co.

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Perceived haven assets rose, with gold US:GCM7 settling 1.8% higher at $1,258.70 an ounce. Demand for U.S. government bonds pushed the yield on the 10-year Treasury note to 2.22%, its lowest yield in about three weeks.

“This isn’t about who is right or wrong; it is about a concern that a number of things could derail the future of economic growth that were not present a month ago. Whether it is oil prices, slowing inflationary growth, or a fear of ‘nothing done’ in Washington, investors are beginning to make some portfolio adjustments,” Kevin Giddis, head of fixed-income capital markets, said in a research note.

Giddis expects investors to sell stocks and move to bonds for now although the shift isn’t likely to be significant unless there is further destabilizing news out of the nation’s capital.

The Japanese yen USDJPY, -0.26% , another asset investors typically turn to in times of stress, rose against the dollar, with the greenback buying ¥111.01, compared with ¥113.12 late Tuesday.

The dollar also slumped against other major rivals. The ICE Dollar Index DXY, -0.07% which earlier fell to its lowest level since before the U.S. presidential election in November regained some ground to trade at 97.51. It hit an intraday low of 97.55.

The probability of a Trump impeachment has gone up after the recent events, analysts noted, with bookmaker Paddy Power’s odds reflecting a 33% chance it could happen. An impeachment requires the backing of two-thirds of the Republican-controlled Senate.

Read:Trump impeachment? Bookies odds increasingly point to an early exit

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Stock movers: Retailer Target Corp. TGT, +0.14% rose 0.9% after posting adjusted earnings that easily outstripped Wall Street’s expectations.

Shares of Advanced Micro Devices Inc. AMD, +0.30% slumped more than 12% after the chip maker late Tuesday laid out its new growth plans.

Red Robin Gourmet Burgers Inc. RRGB, +0.87% soared 23% after the restaurant chain late Tuesday reported better-than-expected first-quarter earnings and sales.

Oil blues:Oil prices US:CLM7 rose 0.8% to settle at $49.07 a barrel, after trading as low as $48.03 earlier in the day.

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—Barbara Kollmeyer contributed to this article.