Trump weighs on tech, with Twitter on the rack

The rally in global stock markets continued to gather pace on Thursday, with European indices up more than 1% across the board and US indices also higher, although there has been some stickiness around the 3,000 level for the S&P 500. The interesting thing about this rally is that it is not being led by the key drivers of stock market gains since the market bottomed out in the third week of March – tech. The Nasdaq 100 index, which includes the US’s biggest names in tech, has stalled a mere 300 points from its record high in early March. This has happened at the same time as social media has come under attack from President Trump. Below we take a look at why it can be costly for a company to have enemies in the White House.  

Social media and political bias 

On Wednesday the President accused Twitter and other social media platforms of political bias, and of silencing conservative voices. He refrained from providing evidence for his attack. On Thursday, President Trump said that he would sign an executive order targeting social media firms. The detail of the order is listed below; however, it comes on the back Twitter using a fact checking label on one of the President’s tweets which called mail-in ballots as “anything less than fraudulent”, which Twitter labelled as unsubstantiated. Trump has since tweeted an accusation against social media companies of censorship ahead of the 2020 election, an irony not lost on Minerva. Interestingly, this has coincided with a flare up of tensions between the President and social media companies. 

Twitter takes one for the team 

Thursday’s market open coincided with yet another tweet from President Trump who said, “this will be a Big Day for Social Media and FAIRNESS.” Twitter’s share price was down more than more than 2.5% at the time of writing, while Facebook is up slightly at 0.6%. Twitter is coming under more selling pressure than its peers potentially because its CEO has gone head to head with Donald Trump saying that his platform will not water down their commitment to fact checking. This compares with Facebook, which has not labelled the President’s posts as essentially fake news, and has not seen its share price come under such strong selling pressure.

Twitter and co to face the lawyers’ music 

According to CNN, who claim to have seen the draft order, it is expected to target the Communications Decency Act, in particular section 230 which gives websites immunity that create and moderate their own platforms. The executive order would mean that the Commerce department could ask the Federal Communications Commission for new regulations that would clarify when a company’s conduct would violate the good faith provisions of section 230. This could make it easier for social media companies to be sued in the future. The order would also ask the Justice Department to consult on anti-conservative bias in social media companies, and it would direct the Federal trade Commission to report on complaints of political bias  collected by the White House, and to consider bringing law suits against the companies if they violate the administration’s interpretation of section 230. 

What this means for social media stock prices 

To some this may seem like an elaborate way for the President to get back at a company for calling him out on a tweet that it believed was fake news, it may even seem petty. To others, the White House is merely upholding a lynch pin of the US Constitution, the first amendment, and the right to free speech. Either way, it could herald a new era for social media companies, and if it is written into law then it could leave them on the hook for a huge number of costly lawsuits and damages. This is one reason why the Twitter stock price has fallen sharply in recent days. 

Of course, all of this could be reversed if President Trump loses the election in November, however, with polling data unclear due to the pandemic, investors are unlikely to price that possibility into Twitter’s stock price right now. Twitter isn’t the only company on the President’s radar, he is also targeting Google for helping the Chinese government surveil on US citizens, on Twitter again for spreading Chinese propaganda and for Facebook for benefitting from Chinese advertising. It will be interesting to see if this gets watered down when the final order is signed by the President. For now, Twitter’s share price is taking the brunt of the selling pressure, with Google and Facebook making small gains on Thursday. This could be because Twitter’s CEO has gone head to head with the President saying that he won’t be watering down the company’s commitment to fact checking. Added to that, Twitter’s share price has lagged behind the other US tech titans and has only recovered 61.8% of its February to March sell off, this compares with Amazon and Facebook, who bucked the global sell off and hit record highs in recent weeks. Twitter’s business model is less diversified compared to Google and Facebook, and it is more reliant on the micro-blogging site, which could be another reason why the company’s stock price is more at risk from this executive order compared to its peers. 

Twitter – the outlook 

Twitter could have a lot further to fall, especially as investors are counting on the micro blogging site being the first in line from lawsuits from the government for anti-conservative bias. A break of $30 per share would be a negative development for Twitter in the medium term, below there $27.50 is a key support level. Looking ahead, if the executive order is less onerous than what we describe then we could see Twitter rebound. For Twitter they are finding out how difficult life can be when you make enemies made at the White House, but if they give in to the President then they could see their user base drop off as people question their credibility. Either way, Twitter could continue to be the fall guy for Trump’s anger at social media companies.