Credit: Shutterstock photoAs we approach the point where, following the election, the Presidential administration will change, it is becoming increasingly clear that traders will need to develop a new strategy.
President-elect Trump may find that once he takes office, his security advisors may attempt to restrict the extent to which he uses Twitter (TWTR) as his main method of communication with the electorate, but so far there is no sign of any restraint in that area.
Given his propensity to use the platform to say whatever is on his mind at any given time and given that many of those thoughts have potential impacts on corporations, traders will have to develop a strategy for what I will call TTT, Trading Trump’s Tweets.
On the evidence so far it seems as if the best strategy for dealing with this situation is to buy into any negative reaction to a Trump tweet. You may remember that just a week ago, on December 6, Boeing (BA) fell dramatically after Trump tweeted about the cost of the new Air Force One, and indicated that he would be looking for savings in the program.
The damage to the stock price, though, was extremely short lived, and already measures as no more than a blip (marked here by a blue arrow) in the upward path of the stock.
Yesterday, stock in Lockheed Martin (LMT) suffered similarly following Trump's tweet over the weekend regarding the costs of the F35 fighter jet project, which he described as "out of control". The early evidence suggests that once again this represents an opportunity to buy at a discount rather than any long term problem for LMT.
After opening lower and continuing to fall in early trading, LMT, like BA last week, recovered later in the day to finish higher than the opening. It did, however, still close around 5% lower than the high reached just a few days ago, and that looks like an opportunity.
As the NY Times article linked to above points out, Trump is not the first to point out that $400 billion is a lot of money to spend on a fighter upgrade. That may well be obvious to many of us, but it is likely that when the headlines are forgotten and the uproar fades, the market will, as in the case of BA, price in the reality that actually doing something about it is not as easy as tweeting about it.
It may well be a coincidence that the F35 project has created jobs in almost every state in the union, but those who have complained in the past are only too aware of the net result of that. It makes it extremely unlikely that a majority can be found in both houses of Congress to cancel or even squeeze the project.
In many ways, this is just another example of a point that I often make; markets tend to over-react to news, particularly bad news. The fear that tough talk will lead to action fades over time and the reality of the fait accompli takes over. It is impossible to know what, beyond the obvious, Trump was trying to achieve when he tweeted what he did, but regardless the most likely outcome is that the F35 project goes ahead.
There may be some minor concessions on price and it may well have the result of reducing margins on future projects, both of which would be good things, but the market is coming to the realization that that could easily be offset by overall increased military spending.
It would seem then that TTT is, most of all, about looking beyond what is actually tweeted, and looking at the political realities behind the rhetoric. It could well be that once in office, a President Trump will use his power to override the local concerns of Congress members and that he will be able to succeed where many others have failed and rationalize some aspects of government spending.
His background in business suggests that this may be the case, but for now, the market is betting that once the initial shock of a challenge to the status quo fades, it will be business as usual. It is that medium term recovery that makes buying the dips in whatever is Trump’s latest target look like, for now at least, the best way to trade Trump’s tweets.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
