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Market rebounds Friday on Steve Bannon's exit, but still falls for second straight week

  • NBC News confirmed earlier reports that Bannon had left Trump's team. A report from Axios hinting at Bannon's departure sparked the turn higher in stocks.
  • Bannon had been walking on thin ice in the Trump administration lately. On Wednesday, Reuters reported that discord between Bannon and Lieutenant General H.R. McMaster is destabilizing Trump's group of top advisors.

U.S. equities closed off their session lows on Friday after Steve Bannon, one of President Donald Trump's top advisors, left the administration.

The S&P 500 closed 0.18 percent lower at 2,425.55 , after falling as much as 0.5 percent. NBC News confirmed earlier reports that Bannon had left Trump's team. A report from Axios hinting at Bannon's departure sparked a turn higher in stocks earlier in the session, with the S&P rising as much as 0.4 percent.

Traders at the New York Stock Exchange literally cheered the news that Bannon was out of the administration.

The Dow Jones industrial average closed 76.22 points lower at 21,674.51; it jumped about 130 points off its earlier lows on Bannon's exit. The Nasdaq composite slipped 0.09 percent to close at 6,216.53.

Tension between Bannon and other top advisors to Trump, including Chief Economic Advisor Gary Cohn and National Security Advisor H.R. McMaster, had been festering inside the White House. On Wednesday, Reuters reported that discord between Bannon and McMaster is destabilizing Trump's team.

The report is "helping because if Bannon is gone it makes it less likely Cohn leaves because they've been battling behind scenes since the inauguration," said Peter Boockvar, chief market analyst at Lindsey Group.

Bannon was the advisor pushing the hardest for a more nationalistic approach to U.S. economic policy. However, his influence has reportedly waned in the Trump administration.

In an interview with left-leaning publication The American Prospect, Bannon said the U.S. is already in an "economic war" with China. "It's in all their literature. They're not shy about saying what they're doing. One of us is going to be a hegemon in 25 or 30 years and it's gonna be them if we go down this path."

If Bannon leaves "I think that's positive for the market because it means that Gary Cohn is staying and if Cohn and McMaster are the ones left advising the president, that's ultimately market friendly," said Dave Lutz, head of ETF trading at JonesTrading.

Equities began the session trading lower on growing concerns that President Donald Trump would not be able to move forward with his pro-growth economic agenda.

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The Dow and the S&P fell 0.8 percent and 0.7 percent for the week, respectively, marking their first two-week losing streak since May. The Nasdaq, meanwhile, posted a four-week losing streak, its longest of the year.

"Longer-term trends at this point remain intact, so this remains a short-term pullback only. And it's tough to make too much of this," said Mark Newton, managing member at Newton Advisors, in a note. For now, this looks like a consolidation since May, "but patterns look increasingly poor and toplike heading into the fall" in many U.S. sector ETFs.

A trader works on the floor of the New York Stock Exchange (NYSE).
Brendan McDermid | Reuters
A trader works on the floor of the New York Stock Exchange (NYSE).

Investors grew worried this week that Trump's economic agenda, which includes tax reform and fiscal stimulus, will not get through Congress. The concerns arose as backlash grew from Trump's remarks following the violent protests in Charlottesville, VA.

This led to Trump dissolving two CEO advisory forums, one of which included JPMorgan Chase's Jamie Dimon. Rumors also started circulating Thursday that Cohn, Trump's top economic advisor, could resign amid the fallout. The White House and multiple reports later confirmed that Cohn would not be leaving the administration.

Trump has also alienated members from his own party this week, with several GOP members backing away from him.

"I think the bigger, overarching theme is that it's not just the CEOs who are alienated by Trump, it's the Republicans," said Art Hogan, chief market strategist at Wunderlich Securities. "Whatever expectations there were about tax reform, they have been pushed out."

Wall Street had high hopes for Trump's agenda after he was elected in November, with stocks shooting up to record highs.

But stocks posted their worst trading session since May on Thursday, with the Dow falling 274 points and the S&P sliding more than 1 percent.

"Since the election, the market has been going straight up," said Sean O'Hara, president of Pacer ETF Distributors. "Sometimes the market goes through these fits and consolidates."

"But at the end of the day, you have to look at the underlying fundamentals. Those are still pretty good. Earnings continue to be strong," O'Hara said.

S&P 500 earnings rose 10.8 percent for the second quarter, marking the first time since 2011 the index has posted two quarters of double-digit gains.

"This market is still being driven by earnings," said JJ Kinahan, chief market strategist at TD Ameritrade. "People wanted to blame yesterday's sell-off on politics, but it was mostly about" Cisco Systems and Wal-Mart earnings.

Investors also digested a terrorist attack in Barcelona in which 14 people were killed and about 130 were injured. European stocks fell broadly, with the Stoxx 600 index sliding 0.7 percent.