With the S&P down some 25 points and the Dow Jones set to open nearly 350 points lower, one can argue that the market response to Gary Cohn's resignation has been somewhat exaggerated.
Others, however, like Bloomberg macro commentator and former Lehman trader, Marc Cudmore, claim this morning that the market reaction to Gary Cohn’s resignation as Trump’s top economic adviser has been "surprisingly resilient."
The reason is that Cohn's resignation is far worse than the market seems to think, and is why Cudmore is convinced that the market's contained response "won't sustain" and that "equity markets will suffer more in the days ahead."
He explains why in his latest macro view.
Cohn Resignation Is Worse Than Markets Seem to Think: Macro View
The market reaction to Gary Cohn’s resignation as Trump’s top economic adviser has been surprisingly resilient. That won’t sustain.
The bullish interpretation would be to focus on global equities largely taking this news in their stride. Sure, there have been pullbacks, but there’s no sign of broad panic and no hint that it portends a worse environment to come. Such complacency is a mistake.
The multitude of ways this is bad for markets hasn’t yet been fully processed, partially due to the timing. When the news broke, most U.S. traders were in the bar or on their way home, while European investors were fast asleep.
Cohn’s resignation suggests Trump is prioritizing his trade war over any potential negative reaction from U.S. stocks, whose performance he has previously treated as a reliable barometer of his success and appeal.
Combined with threats of broader measures against China and talk of European retaliation, this is worrying for global trade and hence damaging for global growth. Emerging markets, relatively complacent so far, may be particularly vulnerable.
The negative impacts won’t stop there, though. The U.S. financial industry sector just lost its key ally in the administration, which can erode confidence for that sector and beyond into the wider economy.
The whole Trump administration is undermined by yet another high-profile departure. And it’s widened the rift between the president and senior Republicans.
Sure, we have no idea exactly how this will play out. And yes, it may all eventually be seen as a storm in teacup. But that’s a potential narrative for a few weeks time. Cohn quitting has effectively released the handbrake on escalating trade tensions.
For now, there can be no conviction about where this will stop. And uncertainty breeds contempt toward adding to risk. Equity markets will suffer more in the days ahead.