Sunday, December 18, 2016

New Reality: Politicians Talk, Stock Shares Drop

By Peter Schroeder
The Hill
December 19, 2016

Companies well -versed in navigating legislative and regulatory hurdles are increasingly finding their stock price under assault from Washington.

A growing willingness by politicians to call out particular companies — and for traders to seize on those comments to try and turn a profit — has created wild stock swings in recent months.

Nowhere has the phenomenon been seen more clearly than with Donald Trump. The president-elect has relished in his ability to directly challenge companies in a very public way, most often through Twitter.

On Dec. 6, Trump picked a fight with Boeing, saying he wanted to cancel a contract with the manufacturer to deliver a brand new Air Force One in the coming years because costs were “out of control,” exceeding $4 billion.

Boeing quickly responded that is only has a $170 million government contract to plan for new planes, and the company’s CEO contacted Trump directly to hash things out.

But the damage was done: the tweet was enough to drive down Boeing’s stock price in the seconds after it was sent.

Trump’s encore performance came days later, when he declared costs tied to the F-35 program, built by Lockheed Martin, “out of control” and pledged that those costs would be slashed once he took office. Lockheed’s stock, like Boeing’s, plunged.

While Trump’s affinity for picking fights is widely known, he isn’t the only prominent politician who has moved the needle on Wall Street.

Both Hillary Clinton and Bernie Sanders had an effect on stock prices during the presidential campaign, with both training their attention on the pharmaceutical industry.

In August, Clinton sent the stock of EpiPen manufacturer Mylan into a nosedive when she joined the growing political chorus criticizing the company for hiking the price of the lifesaving allergy medication. The company’s stock fell as much as 5.5 percent after her message went out.

She exerted similar influence in September, driving down biotechnology stocks after she lamented “price-gouging” in the industry.

Sanders took a similar approach in October, targeting the pharmaceutical company Ariad for raising the price of one of its leukemia drugs. That company’s stock slid as much as 15 percent after the criticism.

The immediacy with which politicians can now broadly disseminate a message, without filter or context from the media, can have a clear market impact.

And with financial professionals constantly searching for a new way to trade faster, an offhand remark from a politician can move billions of dollars in value in seconds.

Bloomberg, which sells pricey terminals that deliver lightning-fast information to financial professionals, has laid out for clients how to integrate Trump’s tweets into their endless feed of headlines and economic data that informs their trades.

But in this era of immediate market reaction to political remarks, it’s an open question whether a critical remark for a politician can have a lasting impact on a stock price.

Trump’s Boeing tweet drove down the company’s stock shortly after it was sent, but the company’s stock had actually gained in value by the end of that day’s closing, and is actually up 1.8 percent since Trump threatened to kills it valuable contract.

The pain was felt a bit more acutely at Lockheed Martin, whose stock fell $4 billion in value in the first minutes after the message, and is down a little more than 1 percent since Trump picked that fight.

Criticism from politicians can also have an upside. Vanity Fair said Friday that its subscriptions rose 100-fold after Trump directed his ire at the magazine one day prior, according to Poynter Trump, perhaps angry that the publication had run a critical review of New York’s Trump Grill, said Thursday the magazine was ailing.

“Has anyone looked at the really poor numbers of @VanityFair Magazine,” tweeted Trump. “Way down, big trouble, dead!”

Similarly, subscriptions to news organizations like The Washington Post and The New York Times have climbed following Trump’s elections, after he spent months condemning the media at his rallies.


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