Market Extra: How the stock market is reacting to Cohn’s resignation from the Trump White House

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U.S. stock benchmarks opened firmly lower after Gary Cohn, the head of President Donald Trump’s National Economic Council, resigned late Tuesday.

Wall Street has viewed Cohn, a former Goldman Sachs Group Inc. GS, -1.03%  executive, as a level head within an administration that has been seen by some critics as in turmoil.

Cohn is regarded as the chief architect of business-friendly corporate tax cuts signed into law last year. His decision to leave the role as the president’s top economic adviser underlines a fear that Trump, who last week announced tariffs on aluminum and steel, is increasingly adopting a protectionist stance. Many strategists and traders see that as a threat to the economic expansion should they spark a global trade war.

He was increasingly on the outs, according to multiple published reports. He also was viewed as part of a so-called globalist faction in the Trump administration, attempting to moderate efforts to impose protectionist policies.

Cohn had lost an intense battle over trade with Peter Navarro, another key presidential adviser seen as a chief proponent of the tariff plan, according to The Wall Street Journal.

Bloomberg News late Tuesday claimed that Trump requested that Cohn publicly endorse a plan to implement tariffs hours before the adviser announced his departure, further adding credence to expectations that import duties—a 25% tariff on steel and 10% on aluminum—will be levied in coming days.

Investors fretted last year over Cohn’s fate. Stocks temporarily dipped in August on fears he would leave the White House after disagreeing with Trump’s remarks in the wake of deadly violence surrounding a white-supremacist rally in Charlottesville, Va.

How market participants are responding

“Since the Trump administration came into being, Gary Cohn was seen as being supportive for the stock market, and the thought was that if Gary Cohn wasn’t in the White House, the stock market would collapse,” said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange.

Borthwick, however, said he disagrees with that assessment and doesn’t think the departure will do lasting damage. “Investors will pay attention to who will be chosen to succeed Cohn, but the market doesn’t appear to be focused on any individual,” he said.

“Obviously, S&P 500 futures down shows that the market had a lot of trust in [ Cohn’s] judgment and he built a lot of credibility on Wall Street over the years,” said J.J. Kinahan, chief market strategist at TD Ameritrade. “He was viewed as the calmer head that would prevail in the [Trump administration],” he said.

“Right now, the market is disappointed, but one player’s not going to change the outlook for the economy,” said Doug Cote, chief market strategist at Voya Investment Management. “I would say the market is overreacting and I would buy the dip.”

“Sorry to lose him but life goes on,” Cote added.

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, was more downbeat on Cohn’s departure.

“The initial market reaction should be very negative,” Zaccarelli said. “It signals that the Trump administration is absolutely going to move forward with tariffs and the risk of a trade war is now more elevated.” The move also represents “the loss of a market-savvy and well-regarded voice of reason within Trump’s inner circle,” he added.

Via Twitter late Tuesday, Cohn’s former boss, Goldman Chief Executive Lloyd Blankfein, said Cohn “deserves credit for serving his country in a first-class way. I’m sure I join many others who are disappointed to see him leave.”

“Steel and aluminum imports represent only 1.6% of total US imports and only 0.2% of US GDP. This highlights the fact that investor concern is really more about whether Cohn’s resignation makes it more likely the president goes after Chinese intellectual property theft and [the North American Free Trade Agreement] and the broader retaliatory trade impacts those moves would have on the economy and corporate earnings,” said Alec Young, managing director of global markets research at FTSE Russell.

“The real problem is that from an economic and market standpoint, the news is about as good as it can get. Plus, events like this start to erode the confidence that things will continue to get better. One of the major supports of the economy and markets has been just that—confidence,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.

“With business confidence at 13-year highs and consumer confidence at an 18-year high, there is more room to go down than up. We don’t need that. Other positive trends that may be peaking include low inflation, low interest rates, strong job growth, and the list goes on,” McMillan said.

How market benchmarks are reacting

The Dow Jones Industrial Average o DJIA, -0.79% on Wednesday was down 163 points, or 0.7%, at 24,6719, well off its lows of the session when the benchmark sank 312 points. Meanwhile, the S&P 500 SPX, -0.51% declined 15 points, or 0.6%, to 2,712. The Nasdaq Composite Index COMP, -0.22% shed 26 points, or 0.4%, to 7,346.

The U.S. dollar, as gauged by the ICE U.S. Dollar Index DXY, +0.33% which measures the buck against a half-dozen currencies, was recently down less than 0.1% to 89.58.