President Donald Trump is tweeting more and it’s affecting the bond market. Since his election in 2016, Trump has averaged more than 10 tweets a day to his nearly 64 million followers. Early on in his tenure, Wall Street seemed to ignore Trump was doing online, but Trump is getting harder for traders to ignore as he increasingly tweets about his trade war, the Federal Reserve, and individual publicly traded companies. Now, JP Morgan Chase & Co. (NYSE: JPM) has devised an index to quantify the impact of Trump’s tweets on the bond market.
The company has created the “Volfefe Index,” an apparent mashup of volatility and the great covfefe tweet of 2017. That tweet occurred when the president took to Twitter to complain about the media in the middle of the night and tweeted about “negative press covfefe” instead of “negative press coverage.” The aim of the index is to analyze how the president’s tweets are influencing volatility in U.S. interest rates.
JP Morgan found that the index explains a measurable fraction of the moves in implied rate volatility for 2-year and 5-year Treasurys. Trump’s market-moving messages most often address trade and monetary policy. The company did not include any specific Trump tweets in its report, but identifies a series of trigger words for markets, including “China,” “billion” and “products.”
The authors wrote in the report, “This makes rough sense as much of the president’s tweets have been focused on the Federal Reserve, and as trade tensions are broadly seen as, first and foremost, impactful on near-term economic performance and, likewise, the Fed’s reaction to such developments.”
JP Morgan isn’t the only Wall Street entity trying to analyze the power of the Trump tweet. Bank of America Merrill Lynch recently told clients in a note that days when Trump tweets a lot are associated with negative stock market returns. But while Trump’s twitter activity can disrupt markets, he has still been good for the stock market overall. Since the 2016 presidential election, the Dow is up 42 percent. It has risen 31 percent since his inauguration.
