Wall Street may not be reacting much now to news of President Donald Trump firing Secretary of State Rex Tillerson in favor of Director of the CIA Mike Pompeo. But the ouster has left potholes in the pathway of the administration as it seeks to tackle its tenuous relationship with countries including Iran and North Korea.
“In my opinion, many in the markets are becoming inured to the turmoil and turnover in Trump’s White House,” said David Kotok of Cumberland Advisors. Moreover. he notes, the fundamentals underlying the stock market remain unchanged. “Does it impact earnings? The answer is: probably not.”
The Dow Jones Industrial Average and S&P 500, which both started the day in the green, remained relatively flat as of mid-day trading Tuesday. The Dow rested at about 25,217 while the S&P 500 stood at 2,781. Consumer inflation data that came in line with expectations also kept markets afloat, giving investor hope that the Federal Reserve wouldn’t hasten interest rate hikes.
Mike Pompeo, Director of the CIA, will become our new Secretary of State. He will do a fantastic job! Thank you to Rex Tillerson for his service! Gina Haspel will become the new Director of the CIA, and the first woman so chosen. Congratulations to all!
— Donald J. Trump (@realDonaldTrump) March 13, 2018
The news comes after Tillerson’s ouster early Tuesday, related through differing accounts from the White House and a State Department spokesperson. While the White House said Tillerson had been notified, a State Department official said Tillerson learned of his firing through the president’s tweets. Later, that State Department official, Steve Goldstein, was then also fired.
“The Secretary did not speak to the president and is unaware of the reason,” Goldstein said in that statement.
White House watchers have been placing bets on Tillerson’s exit for a while now, with the relationship fracturing in the public eye over the past few months. As Trump relayed on Tuesday, he and Tillerson differed on several fronts, while he and Pompeo were “on the same wavelength.” Trump specifically pointed to the Iran Nuclear deal, where Tillerson is said to favor a less aggressive stance compared to Trump. The former oil executive has also taken a more conciliatory tone against North Korea when compared to the president.
Pompeo’s appointment comes ahead of a meeting between North Korean leader Kim Jong Un and Trump.
While for the time being it’s hard to say whether Pompeo’s more hardline approach to international politics may be a plus on the negotiating table, there’s one thing chief investment officer Kotok has more clarity on.
“Risks are rising, with belligerency and bullying rising in the international arena,” said Kotok.
Another potential worry for markets, which took a dip after appearing to signal greater protectionism via proposed steel and aluminum tariffs: “The shift from Tillerson to Pompeo can be viewed as another victory for the trade hardliners,” wrote Evercore ISI’s Terry Haines in a note Tuesday. “Tillerson reassures markets because he came from helming a public company and had a nuanced free trade view.”
Still, Kotok says, while investors have come to expect turmoil and turnover in the White House, they might draw their line in the sand should two other hires currently advising Trump exit D.C.: Defense Secretary Jim Mattis, thought to by Tillerson’s ally, and Chief of Staff John Kelly.