The ‘Trump Rally’ May Have Kicked Into Reverse

Aug. 17, 2017 6:32 p.m. ET

The Dow Jones Industrial Average fell by 274 points on Thursday, and the reasons offered up include a terrorism attack in Barcelona and bad quarterly results from tech stalwart Cisco Systems (ticker: CSCO)

But the major stock indexes also began taking a dip earlier in the day after news appeared suggesting that former Wall Streeter Gary Cohn could resign from his role as a top White House economic advisor because of President Donald Trump’s remarks about racial protests in Charlottesville, Va.

“The Dow briefly pared losses when reports indicated Cohn has no plans to resign and it was just speculation,” according to a CNBC.com report. “Still, the concern remains that members of Congress and others in the business community would not want to work with the President following the backlash that led Trump to dissolve two CEO advisory forums.”

There’s little doubt that the narrative has shifted when it comes to the relationship between Trump and the stock market.

Markets began to rally the morning after Election Day as investors theorized that Trump, working with a new Republican-controlled Congress, would get stuff done that markets like, principally a tax measure that would lower both individual and corporate rates. But the “Trump rally” began hitting speed bumps in recent months, as legislative missteps on health-care reform and Oval Office infighting led to investor concerns that tax reform would be delayed and perhaps watered down.

But in the last week, a political debate that started with a statue of Civil War general Robert E. Lee in a park in Charlottesville has morphed into something much bigger, even jeopardizing Trump’s former status as a pro-business president.

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On Wednesday, Trump’s relationship with the American business community suffered a big setback when the president shut down two different business advisory councils after corporate leaders, starting with Merck’s CEO, repudiated Trump’s initial comments about who was to blame for the street protests in Charlottesville.

Which brings us to Gary Cohn. There have been reports that Cohn, who is Jewish, was upset by Trump’s unwillingness to take a stronger stand initially against white supremacists and neo-Nazis. The former Goldman Sachs executive is also reportedly concerned about any hit his own reputation might take because of his association with an increasingly unpopular president.

During an interview on CNBC, Jeffrey Sonnenfeld, the normally outspoken senior associate dean of the Yale School of Management, said that if Cohn were to leave the White House, a stock selloff would ensue that could “crash the markets.”

That sounds like a bit of an overstatement, perhaps even wishful thinking on Sonnenfeld’s part. Sonnenfeld has been friendly with the Clintons in the past, particularly former president Bill Clinton. But one suspects that Trump isn’t looking forward to testing Sonnenfeld’s hypothesis and will do everything he can to keep Cohn in the fold.

It’s entirely possible that this reversal of the Trump rally won’t last long. After all, there is general agreement that tax reform will pass in some form. Unlike the effort to repeal and replace Obamacare, the votes are there.

As long as Trump can resist the urge to undermine himself, the Charlottesville episode should fade into the past.

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But Trump’s reputation as a business-friendly president has taken a hit for now.

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