January 23, 2017    4 minute read

The Billion-Dollar Disappearing Act

The Trump Tweet    January 23, 2017    4 minute read

The Billion-Dollar Disappearing Act

 

Listen to this article

Listen on iTunes

Donald Trump’s election as US president shocked the world. His radical policies will surely overhaul international relations, while his rhetoric surrounding infrastructure stimulus, domestic tax cuts and light touch regulation has bolstered markets, sending the major indexes up to all-time highs, with the Dow Jones and S&P 500 both up 8.2% and 6.2% respectively since the election on November 8th. His cabinet has replaced political experience with business prowess.

The Power of Social Media

The 45th President of the United States has also adopted an unorthodox method of communicating his ideas: Twitter. The social media platform has served as a channel for the leader of the free world to circumvent what he has called ‘the biased media’, and in some cases, the impact of these 140-character messages has been devastating for the value of companies.

On December 6th, 2016, Boeing lost $1bn in market cap following a tweet that stated:

Trump Twitter

Just a week later, his tweet criticising the cost of Lockheed Martin’s F-35 programme knocked off $2.7bn off of the company’s overall share value. He stated that “billions of dollars can and will be saved on military (and other) purchases after January 20th”, leaving investors to ponder what this means for the defence industry, initially envisioned to be a top performing sector under a Trump administration.

Pharmaceutical companies were next in the firing line, lambasted during Trump’s first official press conference for “getting away with murder”. He referred specifically to high drug prices, and tax bill reduction techniques. As a result, the nine largest pharmaceutical companies, including Johnson & Johnson and Pfizer, lost $24.6bn on the stock market in 20 minutes.

Market Sentiment

How is it possible for such a small message to trigger such a seismic shock in the markets?

Market sentiment, defined as “the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market” by Investopedia, is heavily influenced by quick news stories that often have no impact on fundamental company data in the short term. As the stock markets are guided by what ‘may happen’, instead of ‘what has happened in the past’, even a small hint of stormy waters ahead will be enough to add pressure to the price of a share. Trump communicates his plans, often unexpectedly and without much detail, which results in the markets reacting on the assumption of a worst case scenario.

Trump is followed by 20 million people on Twitter, and the size of this platform provides him with the opportunity to draw a substantial amount of attention to a particular entity. After he tweeted about General Motors Mexican-made model of the Chevy Cruze, searches for the company jumped 200% on Google. In the past, senior company officials have had time to consider solutions in anticipation of damning criticism, but due to the capacity of social media to instantly communicate information, this luxury is no longer enjoyed.

The ‘Trump Tweet’

The ‘Trump Tweet’ is a brand new obstacle for markets, but investors need not panic. Trigger Finance, for example, has recently introduced ‘The Trump Trigger’ which notifies the user in the event of Trump tweeting about a publicly traded company, or a company held in the user’s portfolio. The number of users for this tool has already surpassed the Federal Reserve interest rate monitor.

Bloomberg terminal, a beloved Wall Street tool which allows users to monitor and analyse real-time financial market data and place trades via an electronic trading platform, also features in real time how Trump’s comments alter public opinion, and what happens to a stock, currency and other financial instruments as a result. A ‘Twitter sentiment chart’ offers quick insight as to the positivity or negativity of the messages, providing as much information needed to make decisions on the basis of social media.

Bloomberg Twitter

(Impact of a Trump tweet: grey line indicates share price, blue bars indicate Tweet activity and red and green bars indicate negative and positive sentiment, respectively; Source: Bloomberg)

The President’s Twitter habits are just another challenge for investors and corporations to contend with. In less than just 140 characters, billions of dollars of value can be both created or destroyed. While this has been a nuisance ever since the Republican candidate was confirmed as President-elect, industries are starting to innovate in order to prepare for these unexpected outbursts.

What really concerns investors is the Trump administration’s corporate policies. With control of both Congress and the Senate, many people are expecting a big change. It is now time for that change to come from policy and not platforms.

Get articles like this straight to your inbox each morning with our Breakfast Briefing. Sign up by clicking here!

Log in with your details

or    

Forgot your details?

Create Account

Send this to friend