The emergence of social media has changed the way politicians communicate and engage with voters. In the United States, social media has been used by presidents as a tool to engage voters, affirm political beliefs and raise large amounts of money. President Barack Obama was the first president to use social media to advertise, organise supporters, and communicate with individuals. For instance, in 2012, Obama was able to raise around $690 million through online donations including social media, email, and website (Scherer, 2012). Since 2012 politicians and candidates have tapped into a wide array of social media platforms, such as Facebook, YouTube, and Twitter. At the same time, the number of users on these platforms has multiplied. In recent years, following his ascension to presidency, Donald Trump has attracted a significant amount of attention for his use of social media, especially his personal Twitter account.
Obama used Twitter sparingly – usually only to field questions during public forums or to disseminate important information in times of crisis and national emergencies. In contrast, Trump tweets frequently. As at 2019, he has over 60 million followers, and tweeted over 41,000 times. More pertinently, from the time he announced his presidential candidacy, he has tweeted over 16,000 times – an average of over 18 times a day. Trump’s tweets, although considered official statements by the President of the United States, are often controversial and inaccurate, giving rise to a wave of fact checkers by media outlets. This article will focus on how Trump’s tweets affect key movements in the economy, particularly the stock market.
The Tool – Twitter
Twitter allows its users to communicate messages known as ‘tweets’, limited to 280 characters. Other users can interact with these messages by liking or retweeting them. As of 2018, Twitter has approximately 326 million monthly active users, (Omnicore, 2018).
Given the large subscription to Twitter’s platform, recent research has explored whether the ‘Twitter effect’ has economic relevance. With Twitter acting as a key and widely observable vehicle for statutes of freedom of speech and the media, this often manifests itself as influential figures using it to reinforce pre-existing beliefs and shape trends. Opinions on Twitter typically develop according to endorsements by influential characters and can often dominate public narratives. Sometimes, these dominant viewpoints are difficult to change. The ‘Twitter effect’ has been shown to be particularly relevant to experiential media products these are generally the products for which ‘instant’ success is essential. For instance, the failure of Brüno, a multimillion-dollar movie, has been attributed to the negative sentiments about the movie expressed on Twitter. Positive sentiments, on the other hand, have been the perceived cause of the unexpected opening success of the remake of Karate Kid.
Nisar & Yueng (2018) extend this relationship to effects in stock markets and investment decision making. Their study shows that there is evidence that suggests general public viewpoints, represented on Twitter, can drive market movements. In addition, Twitter can be used to determine the outcomes of several market indicators such as volume of trades, market closing price and average daily change in price. With Trump’s large follower-base coupled with his vocal tweets surrounding important economic issues, there is an observable link between Trump’s tweets and the performance of market indexes such as the Dow, as well as individual company share prices.
Trump & Twitter: Company Stocks
Trump has been known to be a frequent and vocal tweeter, long before he was elected as the president of the United States. His tweets vary from petty criticisms of popular figures and organisations to impulsive statements that often have real world consequences. For instance, some of his tweets have actually resulted in significant blows in several firm’s stock prices.
On December 2016, Trump tweeted: ’Based on the tremendous cost of the Lockheed Martin F-35, I have asked Boeing to price-out a comparable F-18 Super Hornet!‘. He was referring to the F-35 program, which costs a massive $1.5 trillion spread over development, acquisition of jets, operations and maintenance. This single tweet led to a 2% drop in Lockheed Martin’s stock price (a loss of $1.2 billion in market value!) and a 0.5 percent increase in Boeing’s stock price.
In another case involving Amazon, he posted in August 2017: ‘Amazon is doing great damage to tax paying retailers. Towns, cities and states throughout the U.S. are being hurt – many jobs being lost”! The e-commerce giant’s expansion from selling books and electronics to offering virtually every category of products have been perceived to be “killing small business”. Trump may have won the approval ratings from these people at the expense of Amazon’s stock price, which had its market value shaved by approximately $6 billion.
Trump’s capacity to influence market trends and specific stock prices stops short of The New York Times. It appears that every time Trump tweets about his disapproval of the broadsheet newspaper, the stock price manages to remain resiliently stable and sometimes, the stock price even rises instead. Beyond this, a number of other American conglomerates have suffered consequences from his tweeting; General Motors, Ford, Pfizer, Carrier Corporation and many more.
Trump & Twitter: Markets
In the recent talks between the U.S.-China trade deal, Trump signalled his disappointment via twitter in the sluggish pace of the discussions and the imposition of a 25% tariff on $200 billion of exported Chinese goods. This tweet, seen below, had widespread implications on both Dow Jones, and broader global markets, knocking off nearly $2 trillion off globally during the week. The loss in the global market was in part due to market sentiments, as investors had speculated that the U.S. trade tensions were coming to an end after almost a year worth of negotiations. Confidence in the markets, is often quoted as more valuable than gold, and Trump’s very public and observable decline in confidence sent the respective markets into a spiral.
Surprisingly, Trump’s tweet on hiking the tariffs was not widely publicised by Chinese media outlets. Despite the damaging effects that the tweet has caused, Trump’s tweet was censored in China in an effort by the government to curb excessive reactions on the Chinese stock market. The absence of Trump’s tweet lasts until midday, when the tabloid newspaper Global Times eventually published it at the end of a stock market story. The stock market saw a slight drop after this.
The combination of Trump and Twitter will continue to have turbulent consequences for the forseeable future. Unfortunately for markets, companies and other sovereign states combine, Trump appears to understand how to use the platform to produce certain outcomes he wants. Looking forward, it will be interesting to observe whether future presidents follow Trump’s lead with strong Twitter presence, or whether they leave markets to their own autonomy.
The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.