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Published On: Thu, Apr 26th, 2018

Tweet Risk is Real Under Trump

It has been a tough start to the year for US equities. In Q1 2018, investors saw their wealth suppressed by trade war headlines and Fed rate hikes. They could not wait for Q2 to start, with April traditionally one of the best months for the US stock market. But the ever controversial President Trump did not receive the memo, and has aptly reminded everyone, like he has done every so often, that ‘when Presidents speak, markets react’.

photo/ donkeyhotey

Trump and Twitter

But unlike his predecessors, Trump does not speak in formal, organized press conferences. He prefers the 140-character social media platform, Twitter. And unlike scheduled media briefings, which can keep investors alert, by using Twitter, there is a surprise factor. No one knows what time Mr. President will tweet, or even the targeted company. This is why ‘Tweet Risk’ has now become a permanent lexicon among investors in the financial markets.

The more recent illustration of the tweet risk played out against Amazon, the giant US retailer. Trump has, on multiple occasions, suggested that the company is not paying its fair amount of corporate taxes and that it gave the US Post Office a raw deal. But once Trump started a ‘tweet storm’ against the company on the first weekend of Q2 2018, Amazon shares plummeted. The impact of Trump tweets were massive considering Amazon had, at that particular time, just come off two straight weeks of share price losses as the technology sector grappled with privacy issues in the wake of the Facebook scandal.

But Trump’s attack on the company inspired a further 5.2% dip in the share price of the retail giant. To put the impact of Trump’s tweets in perspective, this was Amazon’s largest single-day loss in over 2 years. The loss was also felt throughout the equities market, with Amazon’s share price dip contributing to the worst start to a Q2 since the Great Depression.

NAFTA

But it was not Amazon alone that attracted ire from the President during that fateful weekend. Trump also suggested that he would stop the North American Free Trade Agreement (NAFTA), and while that is not a recent rhetoric, the timing could not have been any worse. Mexico and Canada would be disappointed, but China, whose trade war headlines with the US have pressured the markets in 2018, will have got the message that reaching an acceptable trade deal is not going to be a walk in the park.     

The VIX, also known as the fear gauge, was at its highest levels since March 23, indicating that markets are uncomfortable with capricious and erratic headlines. It was also sufficient proof that indeed Twitter activity does create uncertainty, something that the market abhors. In fact, it was not only the equity market taking a hit. There was a clear shift by investors to safe havens, with the yen (JPY) gaining ground against the US dollar and US 10Y yields sitting pretty at two-month lows.  

photo/ Gerd Altmann

Market Fear

The Amazon tweet storm also raised some issues regarding the role of the White House communications team. Prior to Trump’s rant on the social platform, the White House communications team had insisted that there were currently no plans to take any action against the retail giant, but what followed after the tweets confirms that we are now in unfamiliar territory. There is no consistency in messages and investors have practically no idea what next to expect. Initially, Trump’s tweets would cause only knee-jerk market reactions that would eventually be corrected, but there is now genuine fear among investors that their capital is at the mercy of an unexpected tweet.

Granted, the tweet risk is still a market risk. This means it can impact prices both ways. And while this represents considerable risk in traditional markets, such as the stock market, where players are actually equity holders, it offers great opportunity for fast-moving investors – investors that relish volatility. Numerous analyst reports have shown that a majority of Trump tweets have had a sharp, albeit short term impact, on stock prices of underlying companies. This means that there are numerous opportunities that the tweet-crazy President can offer short term traders. The time to engage in CFD trading could be now!

Tweet Crazy

In his first year in office, Trump sent 2,461 tweets, which averages about 6 to 7 tweets per day. Of course, not all of the tweets impacted the financial markets, but a good number of them did. As the most powerful individual on earth, his tweets can no longer be ignored by any serious investor. Savvy investors can now only seek to profit from the potential volatility his tweets can generate. This would naturally mean moving to online stock trading where the shares of the underlying companies are available for trading as CFDs (Contract for Derivatives). With leverage available, investors can make huge profits even with marginal price movements, no matter the direction. Additionally, there are other innovative trade management tools to help investors gain full control of their trading activity and consequently, minimize their risks while enhancing their potential profitability.

The tweet risk might as well be the tweet opportunity for CFD online traders!

Author: Eugene Liberson

About the Author

- Outside contributors to the Dispatch are always welcome to offer their unique voices, contradictory opinions or presentation of information not included on the site.

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