Stock futures were trading significantly lower this morning, following another revelation from the White House on trade. The president, on Twitter of course, announced that he would be imposing a tariff on all Mexican goods from June 10. It remains to be seen if this threat is a negotiating tactic or will lead to anything, but there are increasing signs that the market doesn’t care; they have had enough of the chaos.

Politically, the Trump Presidency has, if nothing else, been about challenging the norms and assumptions of political life. For the first two years it also did the same in terms of financial markets. One piece of conventional wisdom in particular, that markets hate uncertainty, was suspended for the early part of the Trump era. Even as it became clear that uncertainty was what this administration was about, the markets kept climbing, with stocks hitting new highs.

Some argue that the uncertainty is a result of incompetence, some that it is a deliberate, clever tactic to keep opponents off guard. Which side of that debate you fall on probably depends on which side of the political divide you prefer, but the intent, or lack of it, is not the point.

The fact is that behaviors such as heaping lavish praise on your Fed Chair, Treasury Secretary or whatever one minute, only to turn and trash them the next makes a consistent interpretation of economic policy hard.

If you are inclined to think well of Trump, as it seems many traders are, those things can be put down to personality clashes, or a somewhat unconventional style of personnel management. For the first couple of years of the presidency though, the market also tolerated the more policy-driven uncertainty around trade policy.

As the trade war with China started, and then as it became increasingly clear that, like most wars, it would drag on longer than initially forecast, traders simply shrugged. They focused on historical data and earnings that showed the benefits of deregulation and tax cuts for corporations and, apart from a couple of wobbles, ignored the potential damage of trade restrictions.

Even the big drop in stocks at the end of last year was more about a feeling that Fed rate hikes had gone too far than trade issues. Once it became clear that the central bank agreed that hikes should stop, stocks recovered quickly. Now, though, we are seeing declines with talk of the Fed not just slowing the hikes but reversing course and cutting rates. That has to be about trade.

When I look at a three-year chart for the S&P 500 such as that above, it is not the short-term gyrations that catch my eye. What is noticeable is the contrast between the first half of that chart, which covers the first year or so of the Trump presidency, and the second, which covers the period when his policies begin to have an impact.

Initially there was an unbridled optimism among traders that led to a consistent run up. Now, it seems, the certainty that a Republican president would deliver business-friendly policies that would make everything great seems to be fading.

The cumulative effect of that is that while there has been a lot of volatility, stocks have effectively gone nowhere for nearly 18 months. That should worry investors. It signals a lack of confidence that the chaos can be contained.

Market confidence is usually a fragile thing, but that fragility wasn’t evident in the two years or so following the last presidential election. The problem is that the more durable confidence is, the more it is likely to shatter completely when it does break. The market reaction to yesterday’s tweet and the lack of progress in the market over the last year and a half both suggest we may be at or close to breaking point and if that is true, a major correction is not far off.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.