The Trump Effect

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No matter your political leanings, one thing cannot be denied: President Trump’s unprecedented communication style and use of twitter to praise and criticize individual companies have impacted markets while adding an additional consideration to the communications strategy of any public company. The current President’s unprecedented communication tactics have introduced a new layer of risk for companies. Does “The Trump Effect”, the market reaction to a presidential tweet supporting or attacking an individual company, truly exist? IR Optimizer investigates…

When Trump tweeted in November that Carrier’s parent company United Technology Corporation (UTX) was in negotiations to keep production domestic, the company’s one-year forward-looking probability of default fell 17.5%. This significant decline in credit risk and the consequent reduction in borrowing costs improved the economics of future projects. While UTX benefited from working with President Trump and his resulting laud, many companies have fallen victim to Trump’s Twitter tirades. In early January, Toyota drew presidential ire when Trump declared he would impose “a big border tax” on the company if it built a new plant in Mexico. The effects were immediate and broad; Toyota shares fell 3% before recovering while other Japanese automakers Honda and Nissan both saw more than a 2% decline. Trump’s tweet also caused Toyota’s probability of default to increase an astounding 26.2% highlighting the “Trump effect”.

Recently, the correlation between presidential support or attack and stock movement has become progressively independent When the President tweeted his displeasure with Nordstrom for dropping his daughter’s clothing and accessories line, the company’s shares closed up an impressive 4% by end of day. Later that same day, a Trump tweet regarding Intel lead to almost no movement. Despite hysteria, it turns out that an angry or supportive Trump tweet typically results in minor muted market reaction. Trump’s praises are also having less clout as exemplified by his mid-January tweet thanking General Motors and Walmart for starting job growth in the US. While Walmart stock immediately rose a diminutive amount, GM’s stock price fell .3% with both stocks declining 1.2% and .7% respectively within 24 hours.

Since taking office, Trump has leveraged Twitter making it his official mouthpiece. Whether a Trump tweet results in significant market movement or not, it remains integral that companies respond properly with a strategic crisis communications plan executed by the investor relations teams. It is smart to remember that a company never wants the conversation, online or otherwise, to become politically polarized so if your company is the subject of a POTUS tweet, remember to avoid becoming political or polarized; stick to the facts. As Warren Buffet’s famous quote goes, “It takes 20 years to build a reputation and five minutes to ruin it”.

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