In the 13 years since it was launched, Twitter has become a powerful communication tool for the common man. Flight delayed? Tweet at the airline and, in no time flat, a rep will be trying to make things right. What’s less well-known is that it’s an equally powerful tool in the hands of the powerful. For basically all of American history, presidents who wanted to goose the economy have largely been limited to various arcane policy tools. But now, presidents can improve the economy just by tweeting about it. Who needs Jerome Powell when you’ve got a smartphone? That’s the surprising conclusion of a new study by Clever Real Estate that analyzed three years of President Trump’s tweets, and their effects.
The study looks at the tweets’ effects on the stock market, Treasury yields, and even companies that Trump criticizes, and the findings will almost certainly change your thinking on the nature and reach of social media.
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
When It Comes to Presidential Tweets, More Is Better
One of the more interesting conclusions of the study is that there’s a statistically significant relationship between S&P stock prices and Trump’s tweets, regardless of what he tweets about.
How often does Trump tweet? More often than you probably think. Since November 1, 2016, Trump’s tweeted on all but eight open-market days. He usually tweets fewer than 10 times a day (429 days since Nov. 1, 2016), and has only exceeded 30 tweets on 7 days. Over time, he’s tweeted more frequently, topping out at an average of 19 times a day in October 2019.
Trump’s personal tweeting record was set on October 9, 2019, when he tweeted 36 times, and retweeted 11 times. Using that day as an example demonstrates and clarifies the overall conclusions of the study.
Leading up to October 9th, the S&P 500 had closed an average of 7.35 points lower each day for the previous ten days. On October 9th, one of Trump’s 36 tweets stated that “THE USA IS GREATER THAN EVER BEFORE!” In the following ten days, the S&P 500 increased an average of 12.63 points each day.
As unlikely as it may seem, this relationship is supported by theories put forth by many economists, including Nobel laureate Robert Shiller. Shiller’s theory of “narrative economics” states that the human mind seeks out “narratives,” and that, once it’s seized on one, will act in keeping with that narrative. Shiller contends that economic events like the Great Depression of the 1930s, and the more recent Great Recession, were as much a product of self-fulfilling consumer prophecies as of concrete economic phenomena. For example, when consumer confidence is high, consumers will spend more money, thus fueling the economy. When confidence is low, consumers hang onto their pocketbooks, and the market reacts accordingly. By this logic, Trump’s tweet-borne economic optimism actually drives the market higher by reassuring economic actors.
The positive effects of Trump’s tweets aren’t confined to the stock market. There’s also a correlation between the frequency of Trump’s tweets and the decline of 10-year Treasury yields. How’s this a plus for consumers? Well, a lower yield means a lower return paid out for the purchasers of those Treasury bonds. That payout is essentially the amount of interest the U.S. government is paying on its debt, so a lower yield means less money coming out of Uncle Sam’s wallet.
Historically, the lower the 10-year Treasury yield , the lower the rate on fixed-rate 15-year and 30-year mortgages. So even if they’re not buying Treasury bonds, American consumers are likely benefiting from the rate change.
When you break this theory down to the fundamentals, it’s not that surprising. If the President of the United States says the economy is going great, it’s reasonable for skittish investors to be encouraged by that. What’s more interesting, though, is what the study discovered about what happens when Trump goes negative against specific companies, or even big government institutions like the Federal Reserve.
A look at Trump's tweets scolding the Fed
When Trump tweets about the Fed, it’s almost always negative. Most often, he singles the Fed out for criticism about “high interest rates.” These Fed-critical tweets are especially stimulating to the economy; when Trump trashes the Fed, 10-year Treasury yields close an average of 0.13 points lower for each additional Fed-related tweet, and the S&P 500 closes an average of 43 points higher.
Surprisingly, these tweets also lower interest rates across the board. Lower Treasury yields lead to lower fixed-mortgage rates, and a lower Federal funds rate, which tended to fall in the wake of Fed-critical tweets, leads to lower adjustable rate mortgages.
While lower interest rates are good for everyone, the practice of pushing them down via presidential tweet could end up backfiring. The Fed’s power to control interest rates was the main factor in digging the nation out of the inflation-induced malaise of the 1970s; undercutting that autonomy could end up returning us to an era of gas lines, a weak dollar, and stagflation.
Is There Such a Thing as Bad Publicity?
Trump’s never been shy about trashing companies he doesn’t like, from Amazon to the New York Times. But while his positive comments are great at boosting the economy, his criticism isn’t as effective in the other direction. Let’s look at some specific examples.
The New York Times
In the period leading up to the 2016 election, the NYT’s stock had stagnated at just under $10. Since then, their stock has risen steadily, outpacing the larger market.
However, by the end of 2017, their stock had started to sag again. On November 17, 2017, Trump tweeted about the NYT three times, calling them “naive,” “dumb,” “failing,” “weak,” and “ineffective.” Their stock closed at $17.25 that day, rose a dollar over the next week, and by mid-February had surpassed $25 per share.
Nordstrom dropped Ivanka Trump’s clothing line in early 2017; on February 8th, 2017, Trump tweeted that his daughter had been “treated so unfairly” by Nordstrom.
Their stock, which had been flat for a long period leading up to the tweet, closed 4% higher at the end of the day.
On January 3, 2017, Trump criticized General Motors, via tweet, for bringing cars built in Mexico over the border “tax free” to sell at U.S. dealerships.
General Motors stock, which had been on a long slide lasting several weeks, rose nearly 7% over the next two days.
Governing by Trump's tweets Works, Sort of
Although many people are dismissive of Twitter, it’s really just a medium of communication. And whether the president sends you a letter, calls you on the phone, or directs a 140-character tweet at you, people inside and outside government understand that it carries the weight of his authority. So it’s not surprising that his Twitter commentary on economic matters should have such a powerful effect. What is surprising is that even his criticism has an unintended positive effect on its targets. The old saying must be true: there’s no such thing as bad publicity.