The departure of controversial White House advisor Steve Bannon gives the White House the opportunity to refocus, which should be a slight positive for markets, but it will be up to President Donald Trump to convince investors that he can put his agenda back on track.
Bannon's absence from the West Wing could hand a louder microphone to some of the aides who are more respected on Wall Street, such as Trump's top economic advisor, Gary Cohn, seen as a voice of reason and champion for the administration's economic programs.
As chief strategist, Bannon was seen as a divisive force, pushing nationalist views and protectionist policies, like a trade war with China. Often cited as a party to the infighting among White House advisors, Bannon was also someone sometimes seen as having great influence over the president.
"It's a good thing if it turns out to strengthen Cohn's hand," said Marc Chandler, chief currency strategist at Brown Brothers Harriman. Chandler said the Republican party is a coalition of many groups, including business, and business was beginning to desert Trump.
"Within the government, Cohn is the voice of that [business] faction of the coalition. If Bannon's departure is a victory for the Cohn wing, that's one thing. It's going to take time to tell. Trump has just been going off the reservation, and that's not Bannon," Chandler said.
Putting speculation to rest, the White House announced Friday that it would be Bannon's last day, after he reached that agreement with Chief of Staff John Kelly. Stocks and other risk assets were already rising on early news reports that Trump was firing Bannon. The stock market later gave up much of those gains.
"I think this is trading on hope. The hope at least that Bannon was the bad apple in the barrel, and all it's going to take is another bad apple to pop up. Remember a lot's going on behind the scenes. The Russia investigation is continuing. This is just the latest drama," said Chandler.
Bannon's departure follows a bad week for the Trump administration, which has touted its ability to work with business and bring economic change to America. Trump alienated some of the top CEOs in America who were working with his administration when he failed to fully condemn white nationalists who participated in a violent and deadly protest in Charlottesville, Va.
In a stunningly swift response to Trump's remarks at a press conference on Tuesday, CEOs quit his White House councils and made statements that condemned his words.
After the CEOs abandoned him, market rumors swirled that Cohn was disgusted and would leave the White House, and there was speculation other cabinet members and aides could follow him. That led to a sharp drop in stocks Thursday. The White House denied that Cohn was leaving. Cohn is also in the running to be the next Fed chairman, and strategists say that's one reason he won't go.
"The market is more geared up to worry about Cohn leaving than they are rejoicing by Bannon's departure," said Sam Stovall, chief market strategist at CFRA.
The Wall Street Journal reported that Bannon had argued against Trump's comments Monday against white supremacists, which he made after criticism of his tepid response last weekend to the violence in Virginia. Trump reverted back to his original words on Tuesday, blaming both sides of the demonstrators for the violence. Bannon's influence was also seen this week when Trump criticized the removal of Confederate war monuments.
"I suppose getting rid of Bannon might assuage some of the anger, but the problem is not Bannon. The problem is Trump," said Greg Valliere, the chief global strategist at Horizon Investment.
"I don't see how getting rid of Bannon is more than a 48-hour story," Valliere said "Then we'll be off to the races with whatever Trump says in Arizona. Bannon could also do some major damage and Trump knows that."
Trump holds a rally in Arizona Tuesday, where some strategists say he could pardon Sheriff Joe Arpaio, who was being held in contempt for not listening to a judge's order on detaining immigrants.
Bannon's exit just shows more dysfunction inside the White House, Valliere said.
Bannon, the former executive chairman of the right-wing media company Breitbart, is expected to return to the website, which prides itself on taking aim at government and other institutions and where some fear he could do damage to the administration. The headline of Breitbart's story Friday about Bannon's exit blared: "Get Ready for Bannon the Barbarian."
Stocks gave up their gains after 1 p.m. ET, as early enthusiasm waned. But it was also shortly after Breitbart senior editor Joel Pollack, tweeted #WAR, which some traders took to mean that Breitbart was gearing up to go after the White House and other aides, like Cohn and National Security Adviser H.R. McMaster, already the subject of many Breitbart articles.
Others took Bannon's departure as a sign the two aides would stay and things would stabilize. "I think it's actually good because it would likely keep two people the president needs to have around him — that being McMaster and Cohn," Stovall said. "I think he needs a moat of mightier mindsets around him."
