After his Twitter attacks on such companies as General Motors, Lockheed Martin and Nordstrom, President Donald Trump has gained a reputation for moving markets.
A careful analysis of Trump’s tweets and the ensuing stock trading, however, shows that the presidential commentary looks more like noise than a strong buy or sell signal.
Prattle, an artificial-intelligence firm with a presence in St. Louis, has studied the tweets twice, just before Inauguration Day and again this month at the request of the website Quartz.
The conclusion: Most of the time, the effect on the target company’s stock price is exceedingly short-lived. If you look at a period 20 days before and 20 days after the tweet, the objects of Trump’s attention behave essentially no differently than the market as a whole.
There is an exception: If Trump mentions a specific person within a company — as he did when he named Rex Tillerson, the Exxon Mobil chief executive, his secretary of state — the company’s stock tends to outperform the market by 9 percent.
In market-anomaly terms, that’s huge. It could be a coincidence, because the sample of named-executive tweets is small, but Prattle says the benefit seems to extend to an executive’s entire industry. “When he mentions specific people in his tweets, people normally interpret it as good for business,” Prattle spokesman Jon Ryan says.
Many of Trump’s corporate tweets, though, are negative. He blasted Boeing and Lockheed Martin for cost overruns on airplane contracts, General Motors and Toyota for building cars in Mexico and Nordstrom for dropping his daughter Ivanka’s fashion line.
The market brushes off some tweets quickly. Nordstrom shares closed higher on the day of the retailer’s presidential Twitter-lashing.
Other criticisms initially seem to hurt. Lockheed Martin’s shares fell 1 percent on Dec. 23, the day after Trump complained that its F-35 fighter was too costly, but Lockheed’s shares have beaten the market handily since then.
Day traders love to chase Trump’s tweets: Trading volume invariably spikes after he mentions a company. For the average investor, though, there’s nothing to be gained by joining the fray.
“Someone maybe did discover that the tweets have some value, but the competitive advantage dissipates very quickly,” says Larry Swedroe, research director at Buckingham Asset Management in Clayton.
Thousands of algorithms, or computer programs, reportedly are set up to trade on presidential tweets. Since these programs can act in a split-second, no human trader should even think about trying to make money from Trump Twitter.
“The market knows all of this stuff immediately,” Swedroe says. “Do you think Warren Buffett is looking at tweets?”
Presumably, he’s not. Buffett, a long-term investor, is not in the business of picking up a few pennies by trading a stock that’s in or out of favor with the president.
This raises an interesting question: Is this Twitter-driven buying and selling wasteful or socially productive? Swedroe says it’s a little of both: Day traders don’t produce anything useful on their own, but their activity ensures that we have liquid markets and low trading costs.
So it’s good news that Trump’s tweets have, at most, only a fleeting effect on stock prices. The market is too efficient to be disrupted by a fit of presidential pique, and in the long run the buy-and-hold Buffetts of the world should outperform the day traders.
David Nicklaus • 314-340-8213 @dnickbiz on Twitter firstname.lastname@example.org