Although it’s probably not fair to blame Donald Trump for the entirety of the losses incurred by US stocks on Wall Street’s first trading day of September, the president’s tweets certainly didn’t help.
Trump lashed out at China, the Fed, Europe, James Comey and the Mayor of London, among other real and perceived foes, on Tuesday.
That input was not welcome on a day when trade worries, Brexit and an abysmal ISM manufacturing print conspired to weigh heavily on sentiment coming off the US holiday. Ultimately, the S&P snapped a three-day win streak and the VIX clearly isn’t inclined to reset lower after spiking during the August tumult.
In light of all this, it’s worth highlighting a couple of quick passages from a new BofA note that finds the bank’s Savita Subramanian and Jill Carey Hall discussing policy uncertainty “and the Tweet factor”.
“Trade talk, political campaigning and tweets have contributed to volatility, from China to Fed policy to tax policy”, the bank writes, adding that “since 2016, days with more than 35 tweets (90th percentile) by President Trump have seen negative returns (-9bp), whereas days with less than 5 tweets (10th percentile) have seen positive returns (+5bp)”.
That, folks, is statistically significant.
BofA goes on to warn that US economic policy uncertainty, which is correlated with volatility, “has spiked to 3-yr highs and new tariffs announced in August indicate downside risk to our 2019/20 EPS growth forecasts of +2%/+7%, where indirect impacts from hits to corporate or consumer confidence could be significant”.
As a reminder, we’re already seeing hits to consumer confidence. University of Michigan sentiment crashed to a Trump-era low last month, and the global manufacturing slump has now come home to roost.
BofA’s advice in this environment: “Tread cautiously”.
One person who most assuredly will not be taking that advice is Donald Trump, who, as indicated in the data and visuals shown above, is very often his own worst enemy when it comes to equities, an especially ironic state of affairs given that the market is his favorite real-time job performance barometer.