The Great White House Turnover Sideshow

Editors’ note: Our political commentary is non-partisan by design, and we believe political bias is a dangerous investing error. We prefer no party, politician or ideology and assess political developments solely for their potential market impact.

Chaos! Turmoil! The Apprentice: White House Edition! That is the popular characterization of the Trump administration following a string of high-profile departures. Ever since the S&P 500 opened lower the morning after now-former National Economic Council director Gary Cohn announced his resignation, some headlines have tried to draw a connection between White House turnover and markets, arguing a supposed brain drain and policy uncertainty threatened the US economy and stocks. Yet, as often happens during market corrections, reality appears much more benign than headlines suggest. Not only is high White House turnover not very unusual, but it also shouldn’t imperil the bull market or expansion—if anything, the distraction should add to gridlock, which limits legislative uncertainty.

Before delving into the personalities at hand, a little context is in order. For that we turn to Brookings Institute research on turnover, which they define as the firing, resignation or promotion of senior White House staff—those with keywords like “chief,” “director,” “assistant to the president” and “deputy assistant to the president” in their title. As a result, it excludes cabinet secretaries, but it is still fairly illustrative. According to their analysis, the 34% turnover rate during President Trump’s first year is higher than any of the previous five administrations (as far back as the study goes). Yet when widening the sample beyond year one, President Trump’s turnover is lower than President Reagan’s second year and President Obama’s third. So the timing of the turnover is earlier than his predecessors but the scope isn’t unprecedented.

Some of this turnover has little to do with policymaking. The departed Sean Spicer, Anthony “The Mooch” Scaramucci, Mike Dubke and Hope Hicks dealt with communications. Yes, as the study notes, it isn’t unusual for a new administration to fire “poor performers” or “ethically compromised” staff, which may raise questions about the quality of appointees, supporting the broader fear. But in our view, this is too myopic. Some staffers, like former Deputy Chief of Staff Rick Dearborn, got jobs in the private sector. Others, like former Deputy National Security Adviser Dina Powell, only intended to stay a short while. More broadly, it isn’t unusual for people to enter the West Wing with stars in their eyes, only to realize it is nothing like Aaron Sorkin’s idealized television fantasy. That may be why, according to The Washington Post’s recent breakdown of all staff turnover, 15 of the 37 departed staffers (at the time of the research) resigned without pressure.

But the level of turnover isn’t the only thing preoccupying headlines. Since Trump took office, Beltway observers have hyped a West Wing turf war between the so-called economic nationalists (supposedly led by former Chief Strategist Steve Bannon and trade policy director Peter Navarro) and the more globally minded folks like Jared Kushner, Cohn and erstwhile Secretary of State Rex Tillerson. The one-two punch of Cohn’s departure and Tillerson’s firing caused a big “nationalism is winning!” ruckus. But that strikes us as reading too much into personalities. After Bannon was ousted last August, the nationalists were supposedly losing. Did that suddenly flip in March, when it was good-bye Cohn and Tillerson? But wait! Trump replaced Cohn with CNBC commentator Larry Kudlow, widely seen as a pro-market free-trader. So who is winning now? There is no cohesive tale here at all, as far as we can see. Moreover, policy didn’t radically change post-Bannon, nor is much different post-Cohn. The steel tariffs that allegedly drove Cohn to bow out were under consideration for months, and the administration watered them down greatly after his departure. Not so nationalist. The renegotiated South Korean free-trade deal, also completed post-Cohn, was quite benign. NAFTA talks continue progressing. The China tariffs might stick out like a sore thumb, but these too have been in the works for a long while—and they aren’t huge. Moreover, what presidential administration isn’t a tug-of-war among people and factions with varying viewpoints?

In our view, reading into personnel changes overlooks the fact administration officials and cabinet secretaries have even less power than the president. Economic advisors’ primary responsibility is to yap into the president’s ear—a president who can’t do much unilaterally. There is very little evidence any of these ousted advisors had much clout. While they might propose ideas or support certain policy positions, talk often goes nowhere fast. Cabinet secretaries and agency directors can issue rules and regulatory guidance, but this usually isn’t sweeping and, if done correctly, goes through a painstaking process. Major changes typically require legislative approval, and Congressional gridlock seems likely to thwart efforts.

We suspect high turnover adds to gridlock. It serves as a distraction, both within the White House and on Capitol Hill as staffers jockey for position and lawmakers take sides. When Congressional leaders are briefing reporters about their disappointment over Cohn’s departure, they aren’t writing radical new laws. The more turnover preoccupies GOP leadership, the less legislative change we probably get, especially in a midterm election year.

Mostly, we see the backlash as telling about sentiment. For over a year, all we heard about was the supposed “Trump Rally.” Yet all it took was some market volatility and a round of tariffs for the narrative to change to the “Can’t Last Without Cohn Rally,” which all seems rather silly when you break it down. Market returns over the past 15 months are even less about White House staffers than they were about President Trump. A year or two from now, we figure this all will likely seem as inconsequential as The Mooch’s 10 days as Communications Director.