Covfefe Goes to Wall Street
Analysts at JPMorgan Chase & Co. have created the Volfefe index, a measure of market rate volatility based on statistics about tweets from President Donald Trump. The index’s name is a tribute to the president’s occasional contributions to the English language.
Analysts say that in addition to influencing politics and the general public, Trump's tweets have had occasional impact on financial markets, and may therefore be subject to tracking and analysis like any other economic volatility factor.
The Volfefe index explains a measurable fraction of the moves in rate volatility for two-year and five-year Treasurys, JPMorgan says. It illustrates how the president’s tweets are influencing volatility in US interest rates.
Out of 4,000 tweets made by the president, about 146 seem to have shaken the market. In general, these are tweets that refer to trade tensions, their effects on near-term economic performance, and the Federal Reserve.
Keywords known to spark the index include “China,” “billions,” and “products.”
The JPMorgan report defining the index included an analysis of the president’s tweeting habits to determine his online activity and possibly predict future moves. Analysts found that the tweets that most boost the Volfefe are less likely to receive likes and retweets from the president’s followers.
While most of the president’s tweets are published between noon and 2 p.m., the president also launches a significant number of tweets at about 3 a.m. These are especially problematic for US rates markets, JPMorgan says, because few trades happen at that hour.JPMorgan and Bank of America have documented a correlation between flurries of tweets from the president and falling stock prices.
According to a Bank of America report analyzing data since 2016, days that saw more than 35 presidential tweets have faced negative returns averaging nine basis points. Days with fewer than five tweets have averaged gains of five basis points.
While the president’s tweets may have disrupted the market, his influence on the stock market remains positive overall. Since his election in 2016 the Dow Jones Industrial Average saw an increase of 42% - 31% since his inauguration in 2017.
Nevertheless, according to JPMorgan chief equity strategist Savita Subramanian, the future remains uncertain, as the new China tariffs are forecast to have a significant impact on both corporate and consumer confidence.
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