If the past two days have taught us anything, it’s that the market cares quite a bit about the composition of Donald Trump’s administration.

Have a look at the VIX over the past two sessions:

Don’t forget, those two things are inextricably bound up with one another. Bannon is seen as emblematic of the kind of xenophobia that was on full display in Virginia last weekend and that would be the same kind of bigotry that Cohn was upset with Trump for not adequately addressing.

So what we’ve seen over the last 24 hours is a complete reversal. We’ve gone from “sane person may be departing” to “insane person is definitely leaving.”

Put it this way, you don't want to play Survivor with a guy who rose to the top of Goldman Sachs.

— Dow (@mark_dow) August 18, 2017

And although at the end of the day it won’t change the fact that Donald Trump is President (a “data point” that still hasn’t been priced into markets), it does make people think that maybe a complete unravelling has been pushed out a bit – even if it’s still for all intents and purposes inevitable.

Here with more on what investors should think is Bloomberg’s Cameron Crise…

Via Bloomberg

The intersection of politics and markets is always a difficult one, not least because it can be difficult to check one’s personal biases at the door. It usually pays to look through political noise, because capital will ultimately flow to where it receives an attractive reward. It is arguable, however, that the current environment is somewhat different because of the large and immediate boost to business and consumer confidence after the election of Donald Trump. Risks are emerging that confidence may be starting to fray — if it does, that could be the trigger for a new, more volatile market regime.

• Regardless of your views on Trump, it’s difficult to view his policy accomplishments as anything but a disappointment thus far. Electoral promises to swiftly reform the health-care system and tax code have given way to legislative gridlock. With another debt ceiling impasse rapidly approaching, the prospects for any sort of positive policy developments seem remote.
• This need not matter if businesses and the public remain confident on the state of the economy. As the fault lines in American society widen, however, it’s beginning to look as if corporate belief in Trump and his agenda may be fraying. After defections from the president’s economic advisory council and the preemptive cancellation of an infrastructure group, suddenly being close to Trump is looking more offered than a night out with me.
• At the same time, the market’s negative reaction to rumors of Gary Cohn’s departure are telling. To a degree, I am reminded of Branch Rickey’s comment to Ralph Kiner when trading the Pirates slugger in 1953: “we finished last with you, we can finish last without you.” Trump’s economic agenda has made scant progress with Cohn — can it be any worse without him?
• Still, Cohn does provide an imprimatur of market credibility and offers a beacon of hope that a “market guy” will be there to reform Dodd-Frank, perhaps revive tax policy, and maybe even lead the Fed. From this perspective, Cohn is more of a Barry Bonds: although the Pirates never won a title with the slugger, once he left they devolved into a period of unprecedented ineptitude.
• In the short to medium term markets are a “Keynesian beauty pageant” where the goal is to figure out not what will happen, but what the other guy thinks will happen. If the market views defections from the Trump team as significant, they will become so. And if business and consumer confidence get hit, that could be the trigger for an overdue market correction. It may not be the base case, but it’s a risk worth following to avoid striking out.