Twitter, markets and the Tweeter-in-Chief

The election of US President Donald Trump in 2016 brought a new dynamic into play for investors. The White House ‘bully pulpit’ had moved into the realm of social media, and American companies were the target. The tyro president decided to use his substantial social media presence to fire broadsides at companies he believed were not following his ‘Make America Great Again’ (MAGA) initiative in bringing jobs back to the US or were failing to keep US operations open.

Suddenly, investors in US firms had a new arena to keep an eye on. While Twitter had already matured into a vital platform for financial news, breaking stories and moving markets, the president’s tweets meant that it became even more imperative to keep an eye on the platform. The longer-term impact of the outbursts from the Oval Office might be fairly minimal, but it certainly served to create volatility in the short term for individual stocks.

Trump’s tweets generate plenty of heat but little light

As time has gone on, investors have become inured to these pronouncements, realising that, like much of the US political space, they generate plenty of heat but little light. Indeed, the president himself seems to have cut back on his company-specific tweets, particularly in recent months, as the focus on US companies and the China trade war shifts to the response to Covid-19 and, of course, the intense US election campaign.

Even if there is a changeover of administration, it won’t necessarily follow that the company specific tweets will stop. But Joe Biden is not defined by his Twitter account in the way that Donald Trump is. It seems likely that the presidential twitter account will return to the more measured tone seen under Barack Obama. A Trump win, which would be a surprise to markets, could however see the tweeting intensify, as the second-term Trump looks to turbocharge efforts to push forward on issues like China, trade and the potential post-Covid recovery plan.

Trump’s tweets only have short-term impact

But like the unending focus on which party is good for the stock market, the fascination with the president’s tweets masks an underlying truth, namely that for anyone with a view of longer than a month, the tweets are fairly irrelevant. They provide interesting and entertaining news on a day-to-day basis, and help beleaguered analysts and reporters to find a narrative for each day’s events, but it would be vastly overstating the case to say that the tweets have anything more than a short-term and limited impact. The focus on individual companies has been replaced by a morbid fascination with the ‘will they, won’t they’ stimulus talks in Washington, and here Twitter has come into its own once more. Again, the longer-term outlook for markets will be determined by far more weightier matters, but as October 2020 has seen, intraday volatility can be heavily determined by conflicting reports and tweets about stimulus.

As 2020 moves into 2021, we can expect a continued focus on these stimulus talks. Despite the misplaced hopes of investors, a pre-election stimulus deal was always unlikely. But once the poll is out of the way the focus on the next big recovery programme will return. A programme of some sort is still highly likely, but the form, size and coverage are still to be determined, and will in many ways depend on which side wins and on the size of their win. Short-term traders and investors will remain glued to Twitter, while those with a longer-term view can afford to take a more leisurely view of proceedings. But whatever happens, Twitter’s place as a source of market-moving news remains secure.