Michael Flynn (L), former national security advisor to President Donald Trump, arrives for his plea hearing at the Prettyman Federal Courthouse December 1, 2017 in Washington, DC.
The report raised worries that Trump would not be able to enact highly anticipated proposals such as tax reform that traders have been betting on, along with continuing his deregulation push.
The CBOE Volatility Index (.VIX), widely considered the best gauge of fear in the market, leaped to 14.58, its highest since Aug. 21.
Gold futures rose 1 percent to $1,292.50 an ounce, their highest since Wednesday.
The Japanese yen strengthened against the U.S. dollar, hitting 111.5 yen versus the greenback.
Treasury yields, which move inversely to prices, dropped to session lows. The 30-year Treasury yield hit a low of 2.721, its lowest since Sept. 11.
Following the report, U.S. stocks tumbled more than 1 percent, with the Dow Jones industrial average briefly falling more than 300 points.
However, by midday Friday stocks had recovered about half their losses amid indications the highly anticipated Republican tax reform plan could pass the Senate. Gold trimmed its gains, Treasury yields came off session lows and the yen weakened. The VIX traded around 12.6 as of 12:14 p.m. ET.