In recent months, the market volatility sinks to its lowest level since the financial crisis. Some might expect that President Trump and his administration would bring up market turmoil. However, the truth is opposite. Therefore, the puzzle between high policy uncertainty and low market volatility shows up at this moment.
Pastor and Veronesi (2017) suggest that the precision of political signals can explain this difference. The investors cannot interpret when the government realizes the policy that they promised before, such as tax cut and trade. Thus, the political uncertainty does not influence the market directly. But once the signals become clear and regain their power, the volatility would come back.
Cowen also mentions this topic in his blog and revisits what he wrote three years ago. He argues that the economy stays in the stagnation and market participants do not overreact to the shocks.
Reference: Vox, Marginal Revolution