Isn’t it all psychological? If almost everyone that owns stocks just ignored all the political and financial news, would it not be much more stable? It seems like the tiniest bit of bad news can affect an entire market or stock. This is more of a hypothetical question.
It is mostly psychological, but don’t let the difference between "mostly" and "all" go unexplored.
At the end of the day stock investing is about money, technically retained profits and dividends paid ("profit paid out to stock holders").
Sometimes businesses fail because of a panic, but they are far more likely to fail because of bad management and a failure to make money after costs. Running the numbers; profits, cash flow, internal rate of return, and book value at a minimum; are real and not psychological.
The price on on any particular day is largely psychological, perhaps all psychological. But, over long periods of time — decades — cash flow and sustained profitability have meaning. Price in this context has something real behind it. It is the reason that companies like GE and Philip Morris have been around for 100 years and Pets.com and Enron have not.