False rumors that Gary Cohn is leaving the White House just spooked Wall Street — for good reason

On Thursday, however, a rumor that President Donald Trump's top economic adviser, Gary Cohn, was quitting his team spooked the seemingly calm markets and exposed a possible risk going forward.

Some Twitter users spotted a tweet, later deleted, from a breaking-news service called Breaking News Live that said Cohn, a former Goldman Sachs chief operating officer, was leaving the White House. While the tweet was quickly deleted, chatter about Cohn stepping down picked up among market observers.

The rumor seemed plausible after multiple reports that Cohn was "upset" and "disgusted" with Trump's press conference on Tuesday addressing the violence in Charlottesville, Virginia.

Jonathan Swan at the news website Axios, however, said soon after that the tweet was false and that a White House official told reporters Cohn was still in place.

"Nothing has changed," the official said. "Gary is focused on his responsibilities as NEC Director and any reports to the contrary are 100% false."

When asked whether Cohn and Trump had talked about the president's remarks on Tuesday, the official said the White House was "not going to comment on internal conversations."

Regardless, the possibility of Cohn's departure clearly has Wall Street a bit on edge.

The drop

The S&P 500 began a sharp move down at about 10 a.m. ET, when the rumor first started circulating. Down just 0.1% in early trading, the benchmark index slipped 0.5% in 20 minutes. It's now down about 0.6%, hovering near intraday lows.

US 10-year Treasury yields also dipped on the rumor, falling by as much as 0.7% before quickly paring the drop. Gold climbed as investors sought safety assets, trading as much as 0.8% higher.

In the long term, the specter of a Cohn resignation still looms over the markets. Finance-focused political analysts warned after the rumors that there could be a serious loss of investor confidence if Cohn were to depart Trump's administration. Some observers doubt the business-friendly and economically stimulative policies on taxes and infrastructure promised by Trump can actually materialize without Cohn in the White House.

Jaret Seiberg, an analyst at Cowen Washington Research Group, said an early Cohn exit could be enough to break the market's confidence in Trump's ability to carry out pro-business policies. Additionally, Seiberg said the general cooling of the business community toward Trump may be worrisome.

"At risk is the President's ability to fill out his own team, to push tax reform, to enact an infrastructure bill and to continue to attract business leaders to fill key government posts," Seiberg wrote in a note Thursday.

Additionally, Isaac Boltansky at Compass Point said in a note to clients that a Cohn departure could put a serious dent in the market.

"We firmly believe that if Mr. Cohn departs the White House there will be a material market sell-off as he is running point on tax reform and considered as a front-runner to replace Federal Reserve Chair Yellen," Boltanksy said. "We have no insight into Mr. Cohn’s plans, but our sense from client conversations is that his departure would surely dampen Wall Street’s already dwindling confidence in Washington’s capacity to govern."

False rumors that Gary Cohn is leaving the White House just spooked Wall Street — for good reason

The drop

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