The stock market lost 370 points today. And it might have fallen further if this story about House Majority Leader Kevin McCarthy was not dropped by the Washington Post after the markets closed: "House majority leader to colleagues in 2016: ‘I think Putin pays’ Trump."
To think about all of this, let's begin with two things. Trump's win caused the markets to jump for a few reasons: first, the market did not expect it, and so there was a massive readjustment (or a portfolio shift of stocks that would do well under Trump from those that would do well under Hillary); second, the market lost a lot of fear—meaning, it could take really big risks (the only source of high yields) because it believed that Trump was more likely to bailout, without serious consequences, the banks that made bad bets. This resulted in moral hazard.
Here is two: Upon Trump's victory, the market thought more logs would be added to its bonfire in the form of massive tax cuts for the rich—and it is, remember, mostly the rich who play the markets. But who or what was to pay for these cuts? Obamacare. And this is why so much energy has been spent by the GOP on its repeal. But could Trump crack Obamacare? Recall that George W. Bush tried to crack open Social Security for Wall Street, but totally failed. The American public refused to hand that institution over to the market (and part of me believes this is why the markets crashed in 2008—it needed that SS money to keep going). Would this be the fate of Obamacare? Was it out of reach?
The markets are, above all, psychological. This is what the greatest economist of the 20th century, John Maynard Keynes, well understood. If investors feel confident, then the market expands; if not, then it contracts. What made investors confident about Trump? He beat the much-favored Hillary. Maybe there was something about him that market analysts failed to see. Maybe he had a little something-something on the side? Maybe he could crack open Obamacare.
The markets exploded after November 8 because of moral hazard (deregulation and the socialization of losses) and the expectation of a huge supply of surplus cash (tax cuts for the rich). Today, it began crashing because the size of those who can afford to bet on Trump's future success is shrinking. The markets dipped a bit when James Comey was fired; did not really respond to the news of the intel leaked to the Russians; but it is freaking about Comey's memo. It says Trump asked Comey to end the FBI's investigation into Michael Flynn's Russian ties. Is this memo real? And now it's coming out that a leading member of his party has said he thinks Trump works for Putin.
Even if Trump survives these hits, the growing feeling is that it will weaken him considerably. Bailouts for bad bets? A big unknown. The repeal of Obamacare? An even bigger unknown. Unpopular presidents rarely get much done.
And that is where things stand.