Investment Clock insights

Trump Tweets and Market Retreats?


Nersen Pillay

28 June 2019

As President Donald Trump again uses social media this week to praise the record performance of US equity indices, we investigate how stocks have behaved after earlier, similar Trump tweets. 
The orange markers on the chart above show days when President Trump posted at least one positive tweet relating to equity markets posting new records or reaching all-time highs. Interestingly, apart from in Q4 2017, when the president’s social media posts served as a reminder of the positive market reaction to his newly-introduced corporate tax cuts, Trump’s tweets recognising stock market strength since then have tended to correspond with market peaks. 
Markets fell for different reasons on each occasion and we do not pretend that presidential tweets themselves are in any way the cause of subsequent market corrections. However, it is striking that market downturns can be preceded by the president highlighting strong performance. In June 2018, days after the president tweeted his praise for the performance of equity indices under his tenure, markets fell as the president announced his decision to increase an additional $50 billion tariffs on Chinese imports.  In October 2018, days after Trump cheered markets recovering and reaching all-time highs, stocks plunged to their greatest decline during his tenure; while the causes of this sell-off were various, the president’s increasing threats towards China and decision to trigger a government shut-down certainly fuelled market nerves.  In May 2019, days after Trump tweeted to applaud markets reaching new all-time highs, the President surprised many when he threatened Mexico with the introduction of tariffs if his demands regarding tighter border controls were not met – equity market weakness followed. 
We do not suggest that any Trump tweet about positive market performance should be used as an automatic sell signal. Perhaps, strong equity market performance provides the president with the freedom he needs to take less market friendly actions which may appeal to his core voters. After the president has this week been praising record equity market performance, just ahead of a much anticipated G20 meeting with President Xi this weekend, we wonder if strong markets might make the president more confident about retaining an aggressive position regarding trade with China and tariffs. While this may be the case, our proprietary sentiment indicator has moved out of oversold territory and into neutral territory, perhaps signalling that markets are more complacent about the coming G20 showdown than maybe they should be. In line with this, we have scaled back equity exposure within our multi asset funds.

Source: RLAM and Dow Jones Industrial Average as at 26 June 2019

As President Donald Trump again uses social media this week to praise the record performance of US equity indices, we investigate how stocks have behaved after earlier, similar Trump tweets. 

The orange markers on the chart above show days when President Trump posted at least one positive tweet relating to equity markets posting new records or reaching all-time highs. Interestingly, apart from in Q4 2017, when the president’s social media posts served as a reminder of the positive market reaction to his newly-introduced corporate tax cuts, Trump’s tweets recognising stock market strength since then have tended to correspond with market peaks. 

Markets fell for different reasons on each occasion and we do not pretend that presidential tweets themselves are in any way the cause of subsequent market corrections. However, it is striking that market downturns can be preceded by the president highlighting strong performance. In June 2018, days after the president tweeted his praise for the performance of equity indices under his tenure, markets fell as the president announced his decision to increase an additional $50 billion tariffs on Chinese imports.  In October 2018, days after Trump cheered markets recovering and reaching all-time highs, stocks plunged to their greatest decline during his tenure; while the causes of this sell-off were various, the president’s increasing threats towards China and decision to trigger a government shut-down certainly fuelled market nerves.  In May 2019, days after Trump tweeted to applaud markets reaching new all-time highs, the President surprised many when he threatened Mexico with the introduction of tariffs if his demands regarding tighter border controls were not met – equity market weakness followed. 

We do not suggest that any Trump tweet about positive market performance should be used as an automatic sell signal. Perhaps, strong equity market performance provides the president with the freedom he needs to take less market friendly actions which may appeal to his core voters. After the president has this week been praising record equity market performance, just ahead of a much anticipated G20 meeting with President Xi this weekend, we wonder if strong markets might make the president more confident about retaining an aggressive position regarding trade with China and tariffs. While this may be the case, our proprietary sentiment indicator has moved out of oversold territory and into neutral territory, perhaps signalling that markets are more complacent about the coming G20 showdown than maybe they should be. In line with this, we have scaled back equity exposure within our multi asset funds.

On 3 October 2018, President Trump tweeted the following:

 

On 11 June 2018: 

 

On 23 April 2019:

 

On 20 June 2019:

Source: Twitter

For professional clients only, not suitable for retail investors. Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.