The turmoil enveloping U.S. politics started seeping into U.S. markets Wednesday, with the Dow Jones Industrial Average shedding 373 points while the dollar got hit and the price of gold rose.
It was a clear indication investors are losing faith in the Trump administration, which has pledged a host of Wall Street-friendly reforms, including significant tax cuts for wealthy people and costly infrastructure spending, but so far has been mired in scandals of its own making.
“Tape-bombs, tweets, and ‘shocking revelations’ are likely to dominate trading for some time,” a BMO Capital Markets strategist told clients on Wednesday. Analysts at Keefe Bruyette & Woods said, “The Trump legislative agenda is in mortal danger,” and put the odds of a simple tax cut at less than 50%.
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Wall Street would rather focus on earnings and interest rates than politics. But that’s harder to do now, in part because, to an unusual degree, the Trump administration has lashed its fortunes to the ever-volatile stock market, which returned 234% during President Obama’s tenure.
In February, Treasury Secretary Steven Mnuchin said the strong postelection rally in stocks was an affirmation that the market liked what it saw from the new administration. “Absolutely, this is a mark-to-market business, and you see what the market thinks,” Mnuchin said.
At least on Wednesday, the market seemed to be thinking it had misjudged Trump.