Donald Trump ran a successful Presidential campaign based in part on being unconventional and shaking up the status quo. Those are not properties valued on Wall Street, where predictability and stability are preferred.
While stocks overall have responded positively to Trump’s stated policies, individual stocks have suffered from one of his greatest sources of unpredictability — his preference for Twitter. Trump combines Twitter with frequent off-the-cuff remarks about individual companies, often leaving investors scrambling, confused, or both.
Trump’s tweet on December 6 that threatened to cancel the Boeing (NYSE: BA) contract for replacing Air Force One, the specialized Presidential plane, initiated a Boeing stock decline within approximately 10 seconds of its issuance. Boeing stock dropped by 1.6% — well within weekly or even daily fluctuations for such a large corporation, but still notable because of its source. Lockheed Martin (NYSE: LMT) suffered a similar fate with a tweet regarding the cost of F-35 fighter jets, causing Lockheed stock to decline by 2.5%. Meanwhile, Toyota stock dropped 3.1% in a day when Trump tweeted on January 5:
Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax.
— Donald J. Trump (@realDonaldTrump) January 5, 2017
For a more general case, consider pharmaceutical companies. A December 7 tweet from Trump pledging to bring down drug prices triggered a 4.6% drop in the NASDAQ Biotechnology Index (INDEXNASDAQ: NBI). The Index remains relatively flat at years end.
All four cases represent Trump’s general deal-making philosophy: establish a strong, even outrageous position, and begin bargaining from there. In that context, the tweets make sense — but they still cause Wall Street headaches because nobody is sure what the end game will be. There’s also a sense that Trump may overestimate what he can do from the Oval Office, because Congress still controls the purse strings.
Companies who intend to move jobs overseas or refuse to repatriate overseas funds back into the U.S. are likely targets of negative tweets as well. Any of those companies that derive significant revenue from government contracts could be in the Trump crosshairs.
Trump may keep people guessing with his tweets, but one thing seems clear — his use of Twitter as a communications tool will continue throughout his Presidency.
Are you tempted to pad your retirement funds by making money off the Donald’s tweetstorms? That could turn into a 24/7 task. Trump has been known to unleash overnight tweets, and it’s easy to see how a provocative tweet before the start of the trading day can send futures plummeting.
Keep in mind that speed is of the essence. Even if you can predict the market responses properly, do you have the time and means to execute trades quickly enough for it to matter? Remember that you are competing against day traders and other professionals that specialize in the field and likely have greater resources than yours, including computer algorithms and artificial intelligence.
Here’s the best way to respond to Trump’s stock-altering tweets: don’t.
The effect of Trump’s tweets, especially on large corporations, tends to be transient. Boeing stock may have taken temporary dips but is ending the year on the same overall upward trend that it has been on since September. Lockheed Martin stock remains strong and well above its pre-election mark despite multiple negative post-election Trump tweets.
Even if the effects are long lasting, you should be able to handle significant hits to individual stocks or groups of stocks within your portfolio if you have maintained the proper diversity in your stocks to meet your investment goals and risk requirements. It’s wise to review your retirement plan to see if it has kept up with your requirements, but do not overreact. The whole point of maintaining a balanced portfolio is to minimize the effect of unpredictable risk, and President Trump is likely to define the term “unpredictable risk” for years to come.
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