Wall Street celebrated the surprise election of Donald Trump in November with a big rally on hopes for sweeping tax cuts and a slash-and-burn approach to regulations. But the gains have stalled out lately. Traders and money managers say a big part of the reason is the new president's mercurial and unpredictable approach.
The new administration's first weekend in office did not help matters. First Trump gave a dark and nativist inaugural address promising a new era of trade protectionism. Then Trump and his White House spent most of the rest of the weekend in a bizarre fight with reporters about the size of the inaugural crowds.
The weekend came to an end with The Wall Street Journal reporting that new national security advisor Michael Flynn has been under investigation by intelligence agencies (one of which he now heads) over contacts with Russian officials. Many new administrations face rocky beginnings. This was well beyond the norm.
Trump attempted to get back on track Monday, convening a meeting with a roster of big company CEOs in which he promised to cut taxes and eliminate up to 75 percent "or maybe more" of existing regulations.
But at the same time he signed executive orders to take the United States out of the Trans-Pacific Partnership trade deal, which much of corporate America supported. And he began the process of renegotiating the North American Free Trade Agreement.
That left companies and investors to wrestle with the prospect of a friendlier tax and regulatory environment but also with a very uncertain outlook for global trade and the possibility of damaging trade wars. Taken together, some now expect markets may be vulnerable to giving up the gains seen from November to late December.
"I think a stock market correction is building. We see it in some of our math work. Trump is the cause in my opinion," Cumberland Advisors Chairman David Kotok told me on Sunday. "The more Trump sends a mixed message the worse this will get in my opinion. Look at the latest tax return fiasco. 'I will release my return after the audit has become a Conway statement of 'no.' The bottom line is credibility is destroyed with such behavior and never restored. The count of the crowd is another example. Right now reading this new president is like sculpting fog."
Conway on Monday walked back her statement from Sunday, reasserting that Trump would eventually release his tax returns after audits are completed. She did not alter her claim that "no one cares" about the tax returns despite a recent ABC News/Washington Post poll finding that 74 percent of Americans believe the president should follow tradition and release his returns.
The most worrisome issue for some investors is the question of trade policy. "I have one investment observation as it relates to President Trump's inauguration speech," Seabreeze Partners' Doug Kass wrote in a note on Monday. "Our country is not an island. We live in a global world that is flat and interconnected. Curtailing/protecting the domestic economy by association only can hurt the global economy around us. To think that non-U.S. jurisdictions, in reaction to the administration's new industrial and trade policies, won't trigger their own economic and policy levers — is fanciful."
Some of the sluggishness in markets recently can be attributed to expectations coming back to reality for quick work on sweeping corporate tax reform. The dispute between the administration and Republicans in Congress over border taxes underscored that getting a big legislative package done will not be easy or quick. Trump will have an opportunity later this week when he visits with Hill Republicans at a retreat in Philadelphia to display GOP unity on his legislative agenda.
If he can couple that with a more disciplined approach that does not include indulging his simmering resentments, he could re-inspire market hopes for a period of faster economic growth.
But we've all predicted and hoped for a more buttoned-down and presidential approach from Trump before and it has never materialized. Fear and uncertainty may be with us for quite a long time.
—Ben White is Politico's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet Politico Morning Money [politico.com/morningmoney]. Follow him on Twitter @morningmoneyben.