The stock market's decline on Wednesday highlights the growing concerns about whether Trump loyalists on Capitol Hill will turn against the president in the face of a week of one crisis after another, Wall Street veteran Art Cashin told CNBC.
"That's the critical factor here," the director of floor operations at the New York Stock Exchange for UBS, told "Squawk on the Street" on Wednesday morning, at a time when the Dow Jones industrial average was sinking more than 200 points. "That's why the market is so sensitive."
Until Wednesday, the stock market, which has soared since the election on hopes for a Trump-inspired boost to the economy, had been largely ignoring the White House turmoil.
Earlier this week, the and Nasdaq closed at record highs. The Dow was less than 1 percent away from a record as of Tuesday's close before the latest Trump bombshell hit.
The firestorm that started last week with President Donald Trump firing James Comey as FBI director reached a fever pitch late Tuesday when reports surfaced suggesting Trump asked Comey to "let go" of the investigation into former national security advisor Michael Flynn. The alleged request was detailed in a paper trail Comey kept after Flynn was fired in February.
Traders expected Democrats to blast Trump for this latest revelation, Cashin said. "But if he begins to suffer any sizable defections among the Republicans, that's a problem."
Cashin drew parallels to the Watergate scandal that led then-President Richard Nixon to resign in August 1974 as impeachment proceedings were underway.
"Back in the Watergate days, it was [then-Sen.] Howard Baker that stepped across the line and that's when Nixon knew he was in trouble," Cashin recalled. Any Trump loyalist abandoning the president in that way would "certainly remind everybody" about Nixon, Cashin said.
Sen. John McCain, who's never been a fan of Trump, also evoked Watergate. "I think we've seen this movie before," McCain said Tuesday. "I think it's reaching a point where it's of Watergate size and scale." On Monday, Sen. Bob Corker said the White House was "in a downward spiral" and needs to "figure out a way to come to grips with all that's happening."
Cashin said McCain's comments were not a "great surprise, but if there are others that could be a problem."
There's certainly a concern in the market that Trump's policy agenda of tax cuts and deregulation could be derailed by these controversies, Cashin said.
"[But] there is a perverse positive, not so much for the president but for the agenda, in that people are saying if Mr. Trump were to leave office Pence can work much better with Congress. So there might be some sense of reward there," Cashin said, referring to Vice President Mike Pence.