From 2016 until August 2019, President Donald Trump sent out more than 14,000 tweets, attacking American trading partners, political foes, media companies, and celebrating the strength of the United States and its publicly traded companies. Investors have reason to pay attention to these tweets, as there is a statistically significant correlation between the number of times Trump tweets, and movement of stock markets, particularly the S&P 500 and the Dow Jones Industrial Average (DJIA), according to organisations such as Bank of America Merrill Lynch and JPMorgan Chase.
In general, financial markets respond adversely to surprises and uncertainty, and Twitter has the ability to supply both, leading to spikes in short-term volatilities. An example of this was in 2013, when a hacked Associate Press Twitter feed falsely reported President Obama and other White House staffers had been injured as a result of two separate explosions. Within minutes of the tweet, U.S. equities market plunged. The DJIA dropped 143.5 points, and the S&P 500 temporarily lost an estimated US$136 billion in value.
Trump’s frequent tweeting has also proved an influential market moving force. For example, after his series of tweets announcing plans to place 10% tariffs on $300 billion worth of Chinese goods and products, the S&P 500 fell 0.9% that Thursday and tumbled almost 3% the next Monday as the Chinese Yuan fell against the dollar and optimism over trade gave way to pessimism. Since 2016, days with more than 35 tweets from Trump have coincided with negative returns for the S&P 500 on average, while stocks average a positive return on days when Trump tweets fewer than five times, according to Bank of America. At JPMorgan, strategists have constructed the “Volfefe Index”, named after the president’s baffling “covfefe” tweet of 2017. The index aims to determine how much Trump’s twitter posts unsettle the bond markets, and the conclusion was a lot: “The president's remarks have played a statistically significant role in elevating implied volatility” they wrote in a note released last August.
Overall, while there is a clear correlation, it does not necessarily mean that Trump and his tweets are single-handedly driving markets on a daily basis. “Presidential tweets have become as common as pigeons in New York City and corn in Nebraska,” says Invesco’s chief global market strategist Kristina Hooper. “They’re largely disregarded because the market has become very desensitised.” Her message was that investors should keep an eye on them, but not get caught up in the subsequent short-term fluctuations. Indeed a recent Bloomberg article describes how traders in China have become disinterested in Trump’s tweets: “it’s pointless following him too closely - he might say something today and it will be a whole different story tomorrow,” said Zhang Haidong, a fund manager at Jinkuang Investment Management in Shanghai. Regarding the US-China trade war, Elle Shi, fund manager at Manulife Teda Fund Management Co. said “When the trade war first started, the market fluctuated as people reacted emotionally. Now everyone recognises this will be a long-term negotiation process.” As a result, Chinese stock reactions to Trump’s tweets have become much less severe. Finally, the impact of his tweets depends on the content: his fondness for slating London’s mayor, retweeting rightwing polemicists or lashing out at the “fake news” media is unlikely to move markets, but his increased focus on monetary policy, trade talks with China and his love of criticism for the Fed chair Jerome Powell, as well as the ECB’s head Mario Draghi, has implications for both stock and currency markets worldwide.