False rumors that Gary Cohn is leaving the White House just spooked Wall Street - for a good reason

The US stock market spent the last few months grinding ever higher, setting new all-time records seemingly every week.

On Thursday, however, a rumor that President Donald Trump's top economic advisor Gary Cohn was quitting his team spooked the seemingly calm markets and exposed a possible risk going forward.

A number of Twitter users spotted a tweet, later deleted, from a breaking news service called Breaking News Live that said Cohn, a former Goldman Sachs COO, was leaving the White House. While the tweet was quickly deleted, chatter about Cohn stepping down picked up among market observers.

The rumor seemed plausible after multiple reports that Cohn was "upset" and "disgusted" with Trump's press conference on Tuesday addressing the violence in Charlottesville, Virginia.

Jonathan Swan at Axios, however, said soon after that the tweet was false and a White House official told reporters "nothing's changed."

Regardless, the possibility of Cohn's departure clearly has Wall Street a bit on edge.

The S&P 500 began a sharp move down around 10 am ET, when the rumor first started circulating. Down just 0.1% in early trading, the benchmark index slipped 0.5% over the course of 20 mins. It's now down about 0.6%, hovering near intraday lows.

US 10-year Treasury yields also dipped on the news, falling as much as 0.7% before quickly paring the drop. Meanwhile, gold climbed as investors sought safety assets, trading as much as 0.8% higher.

In the long-term, the spectre of a Cohn resignation looms over the markets. Finance-focused political analysts warned after the rumors that there could be a serious loss of investor confidence if Cohn were to depart Trump's administration. Cohn leaving the White House could create significant doubt that the expected business-friendly and economically-stimulative policies on taxes and infrastructure promised by Trump would actually materialize.

Jaret Seiberg, an analyst at Cowen Washington Research Group, said that an early Cohn exit could be enough to break the market's confidence in Trump's pro-business policies. Additionally, Seiberg said the general cooling of the business community towards Trump may be worrisome.

"At risk is the President's ability to fill out his own team, to push tax reform, to enact an infrastructure bill and to continue to attract business leaders to fill key government posts," Seiberg wrote in a note Thursday.

Additionally, Isaac Boltansky at Compass Point said in a note to clients that a Cohn departure could put a serious dent in the market.

"We firmly believe that if Mr. Cohn departs the White House there will be a material market sell-off as he is running point on tax reform and considered as a front-runner to replace Federal Reserve Chair Yellen," Boltanksy said. "We have no insight into Mr. Cohn's plans, but our sense from client conversations is that his departure would surely dampen Wall Street's already dwindling confidence in Washington's capacity to govern."