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A tweet from US President Donald Trump can move markets. It may also move the market’s perception of the credit risk posed by a company named in one of the presidential posts, according to a report from S&P Global Market Intelligence.
“Trump’s willingness to directly call out firms over Twitter has introduced a never-before-seen dynamic to the markets and, correspondingly, it has affected the market-implied credit risk for individual companies,” said Jim Elder, director of corporate and financial institutions at S&P Global Markets Intelligence.
“Since his election, and based on market reactions, the calculations of our Probability of Market Default Signals (PDMS) model have shown a short-term impact on the credit quality of individual firms that have entered his cross-hairs, for better or worse,” he added.
But the impact can vary from tweet to tweet, the report found.
For instance, when Mr Trump tweeted on November 24 that he was talking to United Technologies subsidiary Carrier about keeping 1,400 jobs in Indiana, UT’s one-year forward-looking probability of default, or PD, dropped 17.5 per cent from November 23-25, the report found.
By contrast, when Rexnord was targeted by a critical Trump tweet over its plans to shutter a factory in Indiana, its PD went up 11.9 per cent in the days immediately before and after the tweet.
Auto manufacturers – a favourite subject of Mr Trump’s – including Toyota and Fiat Chrysler have also seen their PD move in response to presidential praise or criticism, as has defence contractor Lockheed Martin, the report found.
But the effect has its limits – particularly when other non-Trump factors complicate the news cycle. The report pointed to the case of Ford, which was the subject of a congratulatory Trump tweet after it said it would bring 700 jobs to Michigan but then saw the positive PD bounce largely neutralised by its reiteration later that day of guidance predicting earnings per share to decline this year relative to 2016.
“In summary, this latest dynamic in presidential communication introduces a new factor to the monitoring of daily credit risk. President Trump does impact the market perceived credit quality of firms, but traditional fundamental drivers of the firms can still hold greater sway,” said Mr Elder.
The takeaway for corporate America – it’s not just your share price that could move the next time the commander-in-chief decides to put your company in his 140-character cross-hairs.
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