Since the start of his presidency, Donald Trump has been using Twitter to communicate with the masses. But what began as an effort by the president to offer unfiltered communication with Americans has raised ethical questions.
That was especially true in 2019 when Trump’s tweets regarding a trade deal with China caused significant volatility in the U.S. stock market. But now, accusations that the president is significantly moving markets with social media are proving true.
Back in September, JP Morgan revealed the Volfefe Index, which tracks the impact of Donald Trump’s tweets on U.S. bond yields. Named after Trump’s “covfefe” tweet, the index measured how the president’s Twitter account was impacting Treasury yields.
At the time, Citi analysts predicted that the market would probably become increasingly sensitive to Trump’s Twitter rants:
With heavier tweeting on USD and the Fed likely to feature moving forward and these tweets seeing a bit larger and more consistent market moves, it would not be surprising to us if the market showed more, not less sensitivity to tweets over time.
It turns out they were right. The Volfefe Index is now showing that the U.S. Treasury market is more influenced than ever by the president’s tweets. That’s in part because automated traders who use computer algorithms to make rapid-fire trades have started to program the president’s Twitter fodder into their algorithms.
But most shocking of all was the fact that Trump’s tweets are more influential than monetary and economic policy announcements. On a whim, Donald Trump can single-handedly move markets in a more meaningful way than the Federal Reserve’s carefully crafted policy responses.
Does that sound dangerous to you? Because it should.
There are a few layers of concern that pop up with the realization that the president’s off-hand remarks can drive Treasury yields.
First of all, Donald Trump can, and will, say whatever he wants on Twitter. The unfiltered nature of what he says can be misleading—we saw as much in 2019 when the market jumped on an unending cycle of ups and downs led by his tweets.
Some of what he tweeted back then has been questioned for its validity . People wondered whether he lied on purpose to move the market.
Treasury bond yields play an essential role in offering investors a snapshot of the market’s mood regarding the economy. High yields mean confidence is low, and falling yields suggest the opposite. If algorithmic traders are dipping in and out of the market based on Donald Trump’s Twitter account, it changes the relevancy of the metric.
Trump’s Twitter isn’t just influencing Treasury yields, either. A study by Bank of America showed that the more Trump tweets in a single day, the worse the stock market seems to perform .
Of course, Trump isn’t the only one who can move markets with his Twitter account. Elon Musk recently shaved $14 billion off Tesla’s stock price with a single tweet. But importantly, Musk can only move specific stocks, or perhaps a particular sector. He doesn’t have the same influence or control as Trump.
It raises questions about whether or not the president should be able to tweet whenever he wants about whatever he wants. That’s especially true right now as the economy hangs in a delicate balance.
The stock market’s volatility lately can’t be attributed to Donald Trump alone. Still, it does beg the question of whether or not he should have the influence he does without any oversight.