President Donald Trump has used Twitter to forge trade deals and impact foreign policy, but now a major financial services company wants to know how quickly and dramatically Trump’s tweets affect its investors’ bottom lines.
JP Morgan announced this weekend that its market analysts have launched a ‘Volfefe’ index — a play on the President’s notorious “Covfefe” tweet — to track how the president’s social media missives impact the stocks and bonds markets, so that they can determine whether recent changes in interest rates can be traced back to Trump’s Twitter habit.
“Trade and monetary policy have become an increasing focus for the executive branch, and everything from casual sentiments to seemingly formal policy intentions have been disseminated, globally and instantaneously, via this carefully scrutinised social media platform,” according to a press release from JP Morgan. “In response, a broad swathe of assets from single-name stocks to macro products have found their price dynamics increasingly beholden to a handful of tweets from the commander in chief.”
According to the company’s findings, Trump’s habit of using social media to ink policy — especially trade policy — definitely makes a difference in whether their clients are able to make money and whether federal interest rates stay stable.
“This makes rough sense as much of the president’s tweets have been focused on the Federal Reserve, and as trade tensions are broadly seen as, first and foremost, impactful on near-term economic performance and, likewise, the Fed’s reaction to such developments,” the index authors told CNBC.
JP Morgan may have just discovered what others have long known, though. Bank of America commissioned a similar study earlier in the year and found that the president’s tweets can have a dramatic impact on company stock prices if he targets a specific business, and the impact can go either way. Companies on the receiving end of Trump Twitter commentary saw both positive and negative returns from the attention, accordng to BoA’s analysts.
Forbes discovered, independently, back in January, that the president’s habit of naming specific companies, like Boeing, in his tweets brought attention specifically to those companies and drove investor interest and changes in that company’s stock price.
All three studies do come with important caveats that indicate that while the president’s influence on markets is initially very significant, his long term impact is slight. Forbes, specifically, found that Trump’s tweets could make a company’s stock price fluctuate by as much as 5% on a single day, but rarely did his opinion mean even a week-long slump.
Trump’s tweets, Forbes found, “didn’t move the market in any significant fashion.”
The same goes for the bond market and for interest rates. It turns out that it’s not specifically the president’s tweets that cause market volatility, but the uncertainty forged by the administration’s overall economic policy. Pending trade wars, changes to the Federal Reserve, and a potential manufacturing slowdown — as well as a quickly cycling media — all create investor anxiety.
What JP Morgan did find is that it’s fairly easy to predict exactly which tweets will make an impact. Of 4,000 individual non-retweets from the president’s account, only around 146 actually moved the market. Almost all of those tweets featured one of a handful of keywords: “China,” “Democrats,” “billion,” “products,” and “great.”