Trumped by Tweets - Updated

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In the age of social media, and with such an extensive reach, Twitter has become an invaluable communications tool for many, including politicians looking to directly address their constituents on matters of policy and culture.

The 45th President of the United States of America, Donald J. Trump, is only the second sitting President in history to actively engage the use of the social media platform. President Trump has used Twitter to address the public on a wide variety of topics including the addressing of individual companies, countries and future U.S. policy. As a result, his Twitter feed has become an influential market-moving and economic force.

Trump Tweets are nothing new. In 2016, Trump’s pre-inauguration tweet aimed at Toyota Motor
Corporation’s (ADR) cited, “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars
for U.S. NO WAY! Build plant in U.S. or pay big border tax.” The fallout experienced by Toyota was considerable. Toyota stock saw immediate devaluation, losing $1.2 billion in market cap* in the five minutes following the tweet. Over the next six months, Toyota stock lost over 5%, approximately US $12 billion.

Ivanka Trump’s fashion line that once occupied space in the retailer Nordstrom was discontinued in the first quarter of 2017 due to ‘poor sales.’ President Trump issued a statement via Twitter which resulted in an $86 million market cap loss: “My daughter Ivanka has been treated so unfairly by @Nordstrom. She is a great person–always pushing me to do the right thing! Terrible!” In contrast to Toyota, the negative effects were fleeting. Nordstrom stock fell 1% in the minute following the tweet and recovered in the same session.

Perhaps the 2018 number one enemy of the current US president, and most badly economically affected by a Trump tweet, is Amazon (AMZN). On March 31, 2018 a tweet from Trump surrounding the loss of $1.46 average per package by the US Postal Service for each package it delivers for Amazon, caused Amazon’s market cap to fall an astounding $30 Billion.

There are numerous instances of Trump tweets impacting market cap including Intel (INTC), Aetna (AET), Humana (HUM), Pfizer (PFE), Merck (MRK), Anthem (ANTM), among others. Although each of these companies have sustained little impact in long term losses, the focus remains on short term losses. In the turbulent economic environment of 2018, which commonly saw 700+ point swings in a trading day, the Trump tweets fueled the fire of temporary market cap drawdowns.

Individual companies have not been the only targets of a Trump tweet. One particular individual, Federal Reserve Chairman Jerome Powell, was in the scope crosshairs the entire second half of 2018. On July 19, 2018, Trump made his first pass referring to Powell’s monetary policy, tweeting “I’m not thrilled. I don’t like all of this work that we’re putting into the economy and then I see rates going up.” Continuing the next day with “China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day — taking away our big competitive edge,” Trump tweets. “The United States should not be penalized because we are doing so well.” On September 26, 2018 the Fed raised interest rates by a quarter percentage point. Weeks later, though not delivered through Twitter, Trump delivered a scathing blow in saying, “they’re so tight. I think the Fed has gone crazy” for raising rates. Not shy about letting Powell know his dissatisfaction, Trump continued through various media outlets in late 2018 that he was questioning his decision to elect Powell as Federal Reserve Chairman. Trump was most pointedly referencing The Fed as a much bigger problem than China. On December 19, 2018 the Fed raisesd interest rates by another quarter point. On the fateful day, December 24, 2018 when the major market indexes fell between 2.2% – 2.9% in one trading day, Trump tweeted “The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch – he can’t putt!” Message received! Interest rates left unchanged in January 2019, March 2019 AND May 2019.

It is important for market participants to be cognizant of the potential volatility increases related to Trump tweets. Unless one has a crystal ball, it’s near impossible to know just which company will be the next target of a Trump tweet. Though the next Trump tweet target is unpredictable, being aware of which companies or products are most sensitive can greatly limit risk for investors. Remembering the impact is most likely short term so a panic-sell should be avoided.

What’s more, Trump measures his success as the 45th President by the health of the US economy. When there appeared to be a slight slow-down as in late 2018, and he perceived the economy was being affected by the Federal Reserve decisions, the vexation was evident and consistent. It is easy to see that Trump will do what he can to maintain the success of the US economy as long as he is the sitting president. Delivering on his campaign promise, the American economy has boomed and likely will continue to as long as Donald Trump is in office.

* Market capitalization (“market cap”) refers to the total dollar market value of a company’s outstanding shares. “Market cap” is calculated by multiplying a company’s shares outstanding by the current market price of one share. The finance industry uses this figure to determine a company’s size, rather than using sales or total asset figures. Using market capitalization to show the size of a company is important because company size is a basic determinant of various characteristics including risk.