I don’t own any shares of GM or Lockheed Martin, but if I did, I’d be pissed. And a little on the scared side as well.
When you decide to invest in a company, you tacitly accept the fact that there are going to be some disappointments. When you buy stock, you’re taking part ownership of a firm and that means your fortune (both figuratively and literally) will ebb and flow with the fortunes of that firm. Bad sh*t happens. That’s part of it. Earnings sometimes disappoint. Guidance sometimes gets cut. Sometimes the market cares more about the top line number, which keeps your company from being able to manipulate sentiment with EPS-boosting buybacks. Dividends get slashed. And on, and on.
You’re also subject to bad press. And that doesn’t just mean scrutiny from the mainstream media. Sometimes a big money manager will take aim at your company. Or maybe it’s an influential blogger that tanks your shares with a few deft key strokes. Etc.
Given that money managers and even bloggers can move shares, it’s not really the fact that Donald Trump has pushed around stocks with his Twitter account that’s concerning. If we’re just talking about how much pain one individual can inflict by opening his/her mouth, David Einhorn (to name but one example) could probably do a lot more damage than Trump in the short-term.
What’s a bit more disconcerting to me is that the President of the United States is effectively commandeering entire companies via Twitter and forcing those companies to rethink their business models in the space of just a few hours. These aren’t proxy contests where shareholders get to have a say in the matter after months of careful deliberation. Trump is forcing companies to change direction literally overnight. Shareholders don’t even have a chance to get out of the stock let alone participate in a discussion about the direction of their company.
Worse, it’s not clear that Trump’s tweets are carefully considered – and that’s putting it very, very kindly. More often than not, he seems to say whatever’s on his mind irrespective of the impact 140 characters can have on corporate management teams that can’t afford to wait and see if the new President really means it when he threatens punishing tariffs or whether he was just angry-tweeting (that’s the Presidential equivalent of drunk-texting) at 3 in the morning.
This has forced analysts to take Trump’s tweets into account when commenting on the prospects for specific stocks. That, in turn, has led to the contention that idiosyncratic risk will almost invariably rise during Trump’s presidency. It’s thus very possible that Donald Trump could single-handedly bring about a shift in inter-market correlations.
And keep in mind, all of the above only relates to individual stocks and/or sectors. Needless to say the real danger is that Trump tanks the dollar, starts a war, etc. with his (small-ish) thumbs (I’ve talked about the geopolitical consequences of the President’s Twitter account at length in previous pieces).
With all of that in mind, here’s some commentary from the sellside that demonstrates how truly consequential the market thinks Trump’s Twitter feed has become. If you take the time to read the excerpts below, I think you’ll come away both highly amused and a little concerned about whether something in your portfolio might end up on the President’s Twitter agenda.
Via Bernstein
Prepare for higher idiosyncratic stock-level volatility under a Trump presidency due to ‘off-the-cuf’” tweeting. Proportion of risk explained by market currently at 17%, lowest since 1Q07. Idiosyncratic differences are good for active stock pickers, but only if the forces at work are potentially forecastable
Via Citi
Trump’s plan to continue Tweeting directly with his followers and limit the size of the White House press corps also marks a departure from form. We flagged Trump’s Tweets as one of the top political risks for 2017 in terms of their capacity to generate confusion, hit share prices and spark concerns from allies and global leaders. (Alongside this new category of social media-induced political risk we also highlight information warfare.) The use of Twitter by a US president not only bypasses traditional print media and maintains his direct connection with his followers, it also provides a window for allies as well as “frenemies” like China to attempt to read the political tea leaves without the filter of advisers. We do not have any historical basis on which to evaluate the potential impact.
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The power of the tweet. Trump likely to use “public shaming” as a drug pricing tool. Following comments made by Trump at a press conference last week, where he referred to the drug industry as “getting away with murder”, he continued to target pharmaceutical companies over drug pricing in an interview in the Washington Post over the weekend. President-elect Trump’s comments are consistent with his general populist stance, and while we maintain our view that the material political and practical barriers to the implementation of material government actions aimed at regulating drug pricing remain, we, and the Street, cannot ignore the power of the tweet, and anticipate that the President-elect will continue to use this tool to publicly shame companies into “responsible” pricing behavior going forward.
Via Deutsche Bank
From a stock selection standpoint, we like Lockheed Martin, Embraer, and L3 Communications into the Q. We are $1/share ahead of the Street on LMT on the back of lower pension expense. Going into the Q we’re bullish on positive earnings revision for ’17/’18 alongside faster top-line growth vs. peers and a self-help story in turning around the currently near- break-even Sikorsky results (~10% of LMT’s revenue). We see the negative buzz around the company following F-35-related tweets as overblown.
Going into the Q, we see upside to margins and accretive capital deployment as well as higher EPS outlooks on lower pension expense as keys to watch alongside management commentary on a potentially more muscular defense spending outlook. Though some volatility remains in the space–especially with the periodic Tweet–investor appetite in the space remains high.
Via Credit Suisse
We think defense multiples can at least hold around current levels following the recent re-rating, as investor optimism regarding the budget outlook, and the potentially positive effect of U.S. tax reforms, outweigh Trump ‘tweet risk’ and the convoluted and often glacial pace of any potential acquisition reform.
Shares trade at a ~10% valuation discount to peers, while the more platform-agnostic nature of the portfolio makes it less likely to be the focus of Trump tweets.
Still, among the other positives are that the group has an above average federal tax rate, and their relatively smaller size and diversified contract portfolios makes them a less likely target for Trump cost-overrun tweets.
Via Morgan Stanley
Afternoon notes: fundamentals versus tweets
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Oh, and the punchline (via Bloomberg on Saturday):
Twitter Founder Confirms Glitches With @POTUS Account Transition
Twitter says it investigated what happened during transition of @POTUS account and found mistakes which have been corrected, according to co-founder Jack Dorsey.
- “Two issues were reported during the day which we spent the night confirming and have now corrected,” he says
- “1. People who followed @POTUS44 (Obama Admin) after 12pET were mistakenly set to also follow @POTUS (Trump Admin)”
- “2. Some people who unfollowed @POTUS in the past were mistakenly marked to now follow @POTUS”
- “We believe this affected about 560,000 people. This was a mistake, it wasn’t right, we own it, and we apologize. No excuses”
- Accounts like @VP, @WhiteHouse, @PressSec also affected
- “We believe we’ve corrected all accounts to reflect your follow/unfollow intent. We’re sorry for the mistakes made here, and thank you all”
