This is the one thing that could make Wall Street lose ‘confidence in the Trump administration’

Gary cohn donald trump josh kushner

Gary Cohn, the influential economic adviser to President Donald Trump and former Goldman Sachs executive, may not stay long in the White House, according to Axios’ Mike Allen.

Cohn could leave if a new Chief of Staff is brought in above him, and he has told friends that he is interested in the Federal Reserve chair, Allen said in a report on Wednesday.

According to Jaret Seiberg, an analyst at Cowen Washington Research Group, a possible Cohn exit from the White House could undermine any remaining confidence that Wall Street may have in Trump.

Seiberg said that investors have kept the faith in the possibility of tax reform and pro-growth policies because Cohn is around to push those ideas and lend a credible voice of economic expertise to the White House on a daily basis.

“Every time the President tweets something outlandish or is quoted as advocating a populist view on the economy or trade, investors take it with a grain of salt as they believe Cohn will prevent the White House from doing anything rash,” wrote Seiberg in a note to clients on Wednesday. “Cohn’s departure, in our view, could shake market confidence in the Trump administration and cause investors to question how this President will handle the economy.”

In Seiberg’s view, the departure of Cohn could remove a calming economic voice from the White House and delay the parts of Trump’s agenda that Wall Street favours, thus leading to stumbles in the markets.

This possibility, however, comes down to two things: whether Cohn is likely to leave and whether Wall Street would actually care.

Seiberg said there remains a strong likelihood that Cohn will make a White House exit for the Treasury or Federal Reserve, but will probably not become Chief of Staff as other reports have suggested.

“Our view has long been that Cohn would like to either be Treasury Secretary or Federal Reserve chairman,” the Cowen note said.

If Cohn were to take over for Fed chair Janet Yellen when her term expires in February 2018, said Seiberg, this would mean that he would likely not oversee any major aspects of Trump’s legislative agenda.

“The issue is that Yellen’s term is up on February 1,” said the note. “That means the President is likely to announce in November whom her replacement will be or if he will renominate her for another four year term. This means Cohn — if nominated — would likely depart before the President is able to complete tax reform or adopt an infrastructure bill.”

Given the short schedule to be appointed to Yellen’s job, the Cowen analyst thinks Treasury Secretary may be more likely. This timeframe, Seiberg said, would have Cohn take over for Mnuchin after 2019 and likely avoid uncertainty for Wall Street.

Additionally, it’s possible Cohn does not leave the West Wing at all. Zeke Miller, the chief White House correspondent at Time, tweeted Wednesday that a senior White House official said there is “no shake-up coming.” And if that means Cohn stays where he is, there would be no Wall Street worry over his exit.

The possibility of the market reacting poorly to the departure of Cohn is another question. For investors, it comes down to how soon they would get the favourable policies that could drive profit growth and thus stock prices.

On the one hand, Cohn’s exit would be a loss of a voice calling for tax cuts and deregulation rather than protectionist trade policies, something Wall Street likes. This would be the bear case, according to Seiberg.

“We believe the market’s willingness to look past the Trump scandals and tweets is because of Gary Cohn,” wrote Seiberg. “Investors trust the former Goldman Sachs president and believe he will be the force that pushes deregulation, tax cuts and stimulus forward.”

On the other hand, delays in Trump’s agenda have become commonplace, so a Cohn departure might not be much of a change from the status quo. The healthcare overhaul that was supposed to be done by the end of March is stretching into its fifth month. The August deadline for tax reform Mnuchin originally promised has evaporated. There hasn’t been much of any indication as to when infrastructure investment is going to happen.

After taking hits from these delays and the myriad scandals rocking the Trump White House, stocks have resumed their upward climb to new all-time highs. Plus, economic fundamentals and strong earnings growth are already buoying investors confidence, so more policy shocks might not mean much to the market anyway.

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