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Are Stocks at the Mercy of Trump’s Tweets?

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2 Years of Trump Tweets: How Much Power Do Presidential Tweets Actually Have on Markets?

No president in history has personally used social media more than Donald Trump. His tweets have given us unprecedented insight into what the most powerful man in the world is thinking on an almost-daily basis.

These 140-character messages are so important that they’re even considered official presidential statements by the Department of Justice.1

Since President Trump was elected, he has targeted a number of companies with tweets. So much so that “tweet risk” is one more thing traders have learned to watch out for.

What have Trump’s tweets done to stocks over the last 2 years?

But, there are signs that the overall market has learned to ignore Trump tweets2

Though company stocks might take a swing when the president tweets, there are signs that Wall Street has learned to take the president’s tweets in stride. Goldman Sachs analysts found that “President Trump’s tweets on trade matter fairly little for major markets.”

Researchers looked at the link between the president’s tweets containing key words like “trade” and “tariff” and stock market volatility, and they found that there was no obvious connection. In short, the market mostly shrugged off his Twitter commentary.

Goldman Sachs plotted the president’s trade tweets against the VIX “fear gauge” and did not find a clear connection.

Even when the president tweeted about trade many times in a row, the market didn’t show a corresponding increase in market volatility.

Do President Trump’s tweets drive markets crazy? Sometimes.

However, there are other, more direct ways the president affects markets.2

Financial Lesson:Don’t Get Your Stock Tips From Twitter

Is there a measurable Trump tweet effect on stocks? Sometimes.

Positive or negative publicity can affect a stock’s price. The president’s tweets may cause short-term volatility in stock prices, but much of that may be attributable to the headlines generated by media coverage.

Over the long term, the stock market tends to mirror underlying economic fundamentals; however, in the short term, markets can turn on a dime, reacting unpredictably to a wide variety of events, including a tweet, off-hand remark, or media headlines.

Smart investors don’t focus on what happens in the minutes and hours following a presidential tweet. They keep their own goals in sight and focus on a solid financial strategy for the months and years that follow.

REFERENCES AND DISCLOSURES
Methodology: We analyzed the share prices of companies President Trump directly mentioned on Twitter. Our analysis calculated the change in share price from the closing price of the day before the tweet mention to the lowest price post-tweet (except for GM). Days to Recover is the number of trading days required for the price to reach pre-tweet close. Initial post-tweet loss was calculated by multiplying the post-tweet change in price by market cap reported the day prior to the tweet.
GM: https://www.marketwatch.com/story/gms-stock-falls-after-trump-tweet-on-mexico-production-2017-01-03
Sources: Twitter, Yahoo Finance, Macro Trends, Bloomberg
1. https://www.cnn.com/2017/06/06/politics/trump-tweets-official-statements/index.html
2. https://www.bloomberg.com/news/articles/2018-07-19/trump-s-trade-tweets-now-matter-for-only-one-asset-class
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