S&P 500

How Investors Should Think About Shakeups In The Trump Administration

"...suddenly being close to Trump is looking more offered than a night out with me."

If the past two days have taught us anything, it’s that the market cares quite a bit about the composition of Donald Trump’s administration.

Have a look at the VIX over the past two sessions:


Don’t forget, those two things are inextricably bound up with one another. Bannon is seen as emblematic of the kind of xenophobia that was on full display in Virginia last weekend and that would be the same kind of bigotry that Cohn was upset with Trump for not adequately addressing.

So what we’ve seen over the last 24 hours is a complete reversal. We’ve gone from “sane person may be departing” to “insane person is definitely leaving.”

And although at the end of the day it won’t change the fact that Donald Trump is President (a “data point” that still hasn’t been priced into markets), it does make people think that maybe a complete unravelling has been pushed out a bit – even if it’s still for all intents and purposes inevitable.

Here with more on what investors should think is Bloomberg’s Cameron Crise…

Via Bloomberg

The intersection of politics and markets is always a difficult one, not least because it can be difficult to check one’s personal biases at the door. It usually pays to look through political noise, because capital will ultimately flow to where it receives an attractive reward. It is arguable, however, that the current environment is somewhat different because of the large and immediate boost to business and consumer confidence after the election of Donald Trump. Risks are emerging that confidence may be starting to fray — if it does, that could be the trigger for a new, more volatile market regime.

  • Regardless of your views on Trump, it’s difficult to view his policy accomplishments as anything but a disappointment thus far. Electoral promises to swiftly reform the health-care system and tax code have given way to legislative gridlock. With another debt ceiling impasse rapidly approaching, the prospects for any sort of positive policy developments seem remote.
  • This need not matter if businesses and the public remain confident on the state of the economy. As the fault lines in American society widen, however, it’s beginning to look as if corporate belief in Trump and his agenda may be fraying. After defections from the president’s economic advisory council and the preemptive cancellation of an infrastructure group, suddenly being close to Trump is looking more offered than a night out with me.
  • At the same time, the market’s negative reaction to rumors of Gary Cohn’s departure are telling. To a degree, I am reminded of Branch Rickey’s comment to Ralph Kiner when trading the Pirates slugger in 1953: “we finished last with you, we can finish last without you.” Trump’s economic agenda has made scant progress with Cohn — can it be any worse without him?
  • Still, Cohn does provide an imprimatur of market credibility and offers a beacon of hope that a “market guy” will be there to reform Dodd-Frank, perhaps revive tax policy, and maybe even lead the Fed. From this perspective, Cohn is more of a Barry Bonds: although the Pirates never won a title with the slugger, once he left they devolved into a period of unprecedented ineptitude.
  • In the short to medium term markets are a “Keynesian beauty pageant” where the goal is to figure out not what will happen, but what the other guy thinks will happen. If the market views defections from the Trump team as significant, they will become so. And if business and consumer confidence get hit, that could be the trigger for an overdue market correction. It may not be the base case, but it’s a risk worth following to avoid striking out.

4 comments on “How Investors Should Think About Shakeups In The Trump Administration

  1. No doubt. As you have written repeatedly, especially for many of you hard-headed readers at Seeking Alpha, markets care about Trump’s rump and geopolitics, and I thought of just what you’ve writing when these came by:

    “Wall Street recovered earlier losses Friday afternoon after news broke that President Trump’s chief strategist Steve Bannon will exit the White House”

    And then after Bannon’s exit was confirmed:

    “News of Steve Bannon’s departure from the White House on Friday was cheered by floor traders at the New York Stock Exchange. …

    “The S&P, which was down 5 points, promptly rallied 7 points in a matter of minutes and another 5 points over the next hour. When The New York Times confirmed that Bannon was leaving at about 12:40 p.m. ET, the market moved up another 5 points. …

    “Floor traders, who are overwhelmingly Republican, cheered when it was reported that Bannon was out.

    • Anonymous

      couple of things. 1. trump will be in someone’s camera view within 24 hours to tell you what a great job he has done and just look how great the stock market is today; and 2. make hay while the sun shines because he will do or say something very soon that will rain on your haystack.

      – Murphy

  2. Market moves based on what happened in the last 15 minutes in the White House are irrelevant. What they do tell us is that large movers..are VERY nervous about the thin ice the market is skating on and the speed with which those who know that can be spooked. And we are only at the tip of this…between gin and tonics this weekend make a list of all the geopolitical and domestic situations that could hit the fan next weeks..feel free to use both sides of the sheet.

    • Anonymous

      Speaking of Hit the Fan: If you did not see Maddow on MSNBC last night or really early repeat show this morning, find it on MSNBC site. The info regarding Bannon’s plan with Mercer is a threat to the Nation. I also did not know (duh?) that Kellyanne Conway is up to her neck with them. Bannon flat out plans to overthrow anyone who stands between trump and whatever trump wants. Looks like the departure was more Bannon’s plan than a surprise and he sees it as his way clear to pumping up the base support group, telling what he knows about the opposition and basically starting a “war” against opposition of any sort including all media. He seems drunk with “power” that he thinks he has now. They promised this will get ugly. Mercer is at the root and has a lot of money to spend.

      – Murphy

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