Donald Trump, the president of the United States of America, has chosen Twitter as his platform of choice to engage with the masses. Since his early days as President, Donald Trump’s tweets have been considered just like official statements from his office. With more than 85 million followers to boast, Trump can easily influence analysts, world leaders, stock markets, and ordinary people globally, in just 140 words. In this article, we aim to throw some light on whether his tweets lead to a rise or a fall in stock prices.
In the first five months of 2020 alone, Trump has tweeted approximately 800 times. A slightly deeper examination into these figures reveals numerous occasions that Trump’s tweets have caused a flutter in the stock market. Let us look at some of these tweets:
- On 22nd December 2016, after market hours, Trump tweeted on Lockheed Martin, “Based on the tremendous cost and cost overruns of the Lockheed Martin F-35, I have asked Boeing to price-out a comparable F-18 Super Hornet”. The next day, Lockheed Martin’s stock price fell by 2%, decreasing its market value by $1.2 Billion.
- The Dow Jones Industrial Average (DJIA) jumped 270 points in August 2019, when he tweeted that China wanted to reach a trade agreement.
- Also, in Aug 2019, he tweeted, “Our great American companies are hereby ordered to immediately start looking for an alternative to China.” In the aftermath of this tweet, companies like Caterpillar and 3M, which have higher than average Chinese exposure, were down by more than 2.5%, while the DJIA was down about 1.6%.
- When Trump endorsed a boycott of Goodyear Tire & Rubber by tweeting, “Don’t buy GOODYEAR TIRES – They announced a BAN ON MAGA HATS. Get better tires for far less!” the stock price of Goodyear fell by 6%, while those of its competitors increased slightly.
- In April 2020, when Trump tweeted about Russia and Saudi Arabia cutting oil production, stocks in the Energy Traded Funds (ETF) sector shot up by 11.5%.
- And finally, when on 24th February, one of his most (in)famous tweets, “The Coronavirus is very much in control in the USA……Stock Market starting to look very good to me!” the DJIA fell by more than 1,000 points.
The investment banks, Bank of America and Merrill Lynch noted that Presidential tweets can move the market in both ways, up and down. They discovered a correlation between the number of tweets by the president in a day and the movement of the market.
Analysts found that since he became president in 2016, days on which Trump tweeted more than 35 tweets corresponded with negative returns for the S&P 500 on average, while stocks have risen on days with fewer than five Trump tweets.
According to financial analysts at JP Morgan Chase, Trump’s tweets containing the words ‘billion’, China,’ ‘democrats,’ ‘products’ and ‘great’ contributed to market movements.
Researchers have also noted that the Presidential tweets move the market, but not for long. The markets generally recover within ten days. As the elections draw nearer, the impact of Presidential tweets is likely to become even more significant. For a day trader, this volatility in the stock markets needs to be considered, as they can significantly impact margins.
By signing up for a free brokerage account, any trader can trade instantly and learn about the finer nuances of live trading, without losing their own money. By researching on how tweets from the president can affect the movement of the stock market, you can learn how to analyze trends and get an edge in your stock portfolio predictions.
Things get even more interesting if you are a pattern day trader. You can get some exciting insights about pattern day trader rules at Alpaca. Pattern day traders generally trade the same stock multiple times within a day to make a profit margin. The market response to Trump’s tweets lies in the ten-day window following a barrage of tweets. By observing and realizing the social, political, or economic fallout of the tweets, day traders can understand which industry or company in the market will be affected the most and base their trading accordingly.
Attention-based investing could also be a reason for market inefficiency as Trump’s tweets lead to an abnormal trade volume increase on the day of the tweet and an increase in Google search activity on the week of the tweet. Trump is extremely concerned about the performance of the stock markets, as he compares it to a direct reflection of his Presidency. Even though he tries to buoy the market with his Tweets, in most cases, it works as a reverse.
To sum it all up, as the Presidential tweets have moved from being viewed as opinions into action-based tweets, increasing activity has been observed in the markets. It can be expected that the markets tend to fall, lowering stock prices of companies or industries mentioned in the tweet. With the election coming up in less than a couple of months, day traders can take full advantage of Trump’s rapid-fire tweeting, which is surely going to increase.
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