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How a White House walloped by scandal may 'change the odds' for Wall Street, and your retirement

News out of Washington seemed to have a direct impact on Wall Street this week.

On Wednesday, the Dow Jones Industrial Average fell 373 points, the biggest single drop of the year and the worst day since September, while the Nasdaq had its biggest drop since June.

The depth of the move took some market professionals by surprise, given that stocks have rallied strongly on the heels of a "Trump Trade" that banks heavily on President Donald Trump passing a pro-growth legislative agenda. Now, it would appear investors have their doubts.

"It came as a bit of a shock this week to see this move," J.P. Morgan Asset Management chief global strategist David Kelly told CNBC's "On the Money" in an interview.

The steep drop occurred the day former FBI Director Robert Mueller was appointed special counsel to investigate possible connections between Trump's campaign and Russia during the 2016 election. With some investors getting nervous, it raises the question of whether Wall Street is in for more volatility if more turmoil engulfs the White House.

"We'll just have to see how events play out. If the investigation continues quietly in the background, maybe there's not much fallout," Kelly told CNBC. "But if we get more revelations or more reaction from the administration, that sort of changes the odds, and there could be more volatility."

Retirement changes ahead?

With the potential for more stock market volatility ahead, would now be the time for investors to adjust their retirement savings strategy, and temper that risk with the relative safety of bonds?

"If you thought that volatility was going to be much higher, then you would want to be a little more weighted in bonds," Kelly said.

But he added the problem with that possible strategy is "we don't know that volatility is going to be much higher than it has been on average." With that in mind, "interest rates are still very low and that makes a lot of bonds unattractive."

With growth still modest, "the key question is where is the economy going?" Kelly asked CNBC, even as the U.S. economy enters "its eighth year, going into its ninth year" of expansion.

While "growth in the market is going to be slower, overall the economy looks O.K., it is ambling forward in a pretty healthy fashion," Kelly added. "So, as long as you were positioned O.K. early on this year, there's no real reason make a change right now."

However, Kelly said he is "watching" events in Washington "very closely" and that the possible upside for the markets from Trump's agenda remains intact.

"The President's agenda is potentially very good for the stock market. Particularly if we get cuts in corporate taxes and if we get cuts in the capital gains and dividend taxes," the analyst said. Still, "there's a question mark about whether those things will be implemented."

Kelly says while the events in Washington matter for investors, as far as retirement savings plans go, "for right now, there's no particular reason for people to change their allocations."

On the Money airs on CNBC Saturday at 5:30 am ET, or check listings for air times in local markets.