• Iulia Lavinia Marin

Trump’s Twitter Feed: A Singular Source of Market Volatility?

Twitter Inc lost almost $5 billion in market value as a consequence to permanently ban Donald Trump's widely-followed account while also causing concern among investors regarding the upcoming regulations of social networks.

Twitter explained that its suspension of Trump's account, which, by that time, had managed to acquire 88 million followers (nearly half of the company's total base of monetizable daily active users), was due to a possible “further incitement to violence”, following the storming of the U.S. Capitol.

Facebook’s share, which suspended Trump’s account starting with Jan. 20 and possibly indefinitely, also declined about 4 per cent. Despite the drop in stock prices, the whole situation has often been regarded as a good example of Big Data censorship - while Trump and his supporters immediately accused the social media platform of restricting free speech, First Amendment lawyers explained that the action did not violate any of the president’s rights: The Constitution defends against governmental action censoring a citizen’s speech, but cannot defend against private social media companies.

Nevertheless, it is to be taken into account that Trump’s social media reaction is far from being out of the blue. Even since the last weeks of the U.S. presidential campaign, he could not desist forecasting market havoc as the first consequence of the Vice President Joseph R. Biden Jr.’s possible election.

“If Biden wins, you’re going to have a stock market collapse the likes of which you never had.”, he mentioned to an enthusiastic crowd of supporters at an airport near Reading, Pa., at the end of November.

However, time proved him wrong, with the stock market witnessing new record highs, thanks to a range of inaugurations, from the one of the Covid-19 vaccine to Biden’s victory and end of political uncertainty. While investors, despite their political affiliation, were just about to move past a profitable, although politicized and pressured period for investment, Trump’s actions started to carry their own weight over stock prices. Although investors generally upheld his administration policies, the whimsicality of his tweeting became an impactful issue. After, for four years, he had been using his digital pulpit to either praise or call down different companies, to start a trade war with China, or unveil the economy’s strengths prior to official announcements, Twitter became an unparalleled source of market volatility.

Barry Ritholtz, a money manager from U.S.’s East Coast expresses that he wants his life “to go back to normal”, although also emphasizing that he does not point to the time prior to the pandemic, but to the “pre-golden-escalator-to-hell normal”, referring to Trump’s 2015 well-known ride down the lift in his Trump Tower, as it culminated with the announcement of his candidacy. After Biden’s victory official appraisal, Mr. Ritholtz could not but unfollow as many Trump-related accounts as possible on Twitter, since the only reason he was beforehand paying attention to them was that he was managing more than $1 billion in client assets.

While presidents do not usually make public, disapproving remarks regarding individual companies, in this regard, Trump remains one-of-a-kind. Even so, there were a few related exceptions in the past: in 1962, President Kennedy also publicly condemned steel executives for their price increases, as the whole country was concerned with inflation. The happening was followed by rumours about antitrust investigations of the field, this concerning investors and, therefore, triggering a considerable market slump. Other presidents such as Reagan or Clinton usually stood away of making remarks concerning the stock markets, although booming, and this proved to be a good strategy, given that they did not have to deliver any message on the market busts that eventually followed.

On a contrasting note, Trump turned the stock market into a personal gauge, sending tweets with stock market references dozens of times during his term - “Broke all time Stock Market Record again today, 135 times since my 2016 Election Win. Thank you!”, he once wrote on Tweeter. His focus even determined Professor B. Dan Wood, from Texas A&M University, to call him “an outlier”. On the other hand, in difficult times with slumping stocks, he would publicly associate the fall in prices with his political adversaries, such as the Federal Reserve, some news media, or congressional Democrats.

Kristina Hooper, chief global market strategist at Invesco and a close follower of financial markets since many years ago, explains how Trump challenged the Wall Street professionals’ view that daily political updates are at the ladder of market-moving actions, while also prompting her whole team to join social media platforms.

Trump started off as a major stock prices’ influencer right from the night of his election, when they plunged 5 percent, given investors usual preference for Hillary Clinton. The rebound was, nevertheless, natural, due to the giant tax cut for corporations and wealthy people, this also making the S&P 500 climb 19.4 percent in 2017. However, 2018 and its higher tariff on global trading partners (China, Europe) made stocks tumble 10 percent in the first quarter and 20 percent in the fourth one, including other sporadic losses after actions such as Trump’s tweet declaring himself a “Tariff man”. 2019 benefited from Federal Reserve’s abandoned planification to raise interest rates, this making the market gain 29 percent throughout the year. In 2020, the pandemic did not stop U.S.A.’s last president from tweeting about negotiating a fiscal stimulus with congressional Democrats, this again causing losses.

So, was Trump’s four-year term a reason for or against the market’s strong performance? Investors owning the S&P 500 stock index are more than a half between the 2016 day when he was elected and the November day when he stepped down. What has been more relevant to investors? His worrying policies’ announcements or his steep tax costs booming the market? No matter the answer, a more silent period seems to be lying ahead given the bans on Trump’s media megaphones.