Peace proved fleeting in markets, as investors fretted that Gary Cohn leaving the Trump administration prunes it of a key source of stability, just as signs of a trade war are multiplying.
US stock futures erased two days of gains after the former Goldman Sachs Group, Inc. executive said that he was stepping down as President Donald Trump’s top economic adviser. For traders, it promised another round of turbulence after rising bond yields and protectionist threats caused share volatility to double over the last month.
Surprising Move
“I can’t believe this is happening,” Michael Purves, Weeden & Co.’s chief global strategist, said by phone. “I wrote up Cohn’s departure this morning as a real risk to consider. I thought, it’s like a 35% probability event. I was just amazed that Trump is letting this happen.”
The move came as the Trump administration considers clamping down on Chinese investments in the US and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property. Cohn quit hours after a confrontation with the president in the Oval Office, people familiar with the episode said.
“Of all the Trump administration resignations, this will be the one most meaningful for markets,” said Michael O’Rourke, chief market strategist at JonesTrading Institutional Services. “Cohn was the administration official financial markets had the most confidence in. This opens the environment up to whole new wave of uncertainty. The likelihood of a trade war just jumped dramatically.”
Contract Decline
Contracts on the S&P 500 Index sank 1.1% as of 6 a.m. in London, after starting the session down 0.9% – the most for any open since June 2015. Futures on the Dow Jones Industrial Average declined 350 points, or 1.4%, while those on the Nasdaq 100 Index lost 1.1%. The S&P 500 had risen for three straight days into Tuesday’s close, adding almost 2%.
“A lot of people saw him as a calming influence to the Trump administration,” said Nick Twidale, a Sydney-based chief operating officer at Rakuten Securities’ Australian unit. “Now he’s gone, there’s that perception that maybe they’re letting loose the hard-line aspects of the Trump administration to go even harder on protectionism.”
The president’s announcement last Thursday that he would press forward with a 25% tariff on steel imports and 10% on aluminium left markets reeling and served as a public rebuke of Cohn, the director of the National Economic Council, who had furiously lobbied against the penalties.
Policy Uncertainty
“Policy uncertainty has underpinned a lot of the market’s recent volatility,” Stephen Wood, chief market strategist for North America at Russell Investments in New York, said by phone. “This speaks to the instability. He’s an advocate for free-trade policy, so there would be expectation that protectionist voices would be more representative in the administration.”
Equity investors also lamented the departure of an architect of a favourite policy initiative – the tax overhaul – which helped send the S&P 500 to its biggest January gain in two decades.
“Cohn’s huge accomplishment was tax reform, which responded to low corporate taxes abroad by bringing the US corporate sector back to a competitive position,” said Barry Bannister, chief equity strategist at Stifel Nicolaus & Co. “Almost all nations had been undercutting the US on corporate tax rates and export subsidies, such as refunding sales taxes at the point of export, which is prevalent abroad.”
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