During a recent board meeting in July, Christopher Ailman, the chief investment officer of the California State Teachers’ Retirement System (CalSTRS), said President Donald Trump’s behavior on Twitter was one of his top concerns as governor of the $237 billion portfolio.
“The number one thing on my mind was trade fight and trade wars, and that obviously links to the president’s tweets,” Ailman said. “Who knows that would come together.”
Global markets endured significant turbulence because of concerns about trade talks with China breaking down, Ailman said. “There’s more volatility in the trade talks than I think the US is used to, and that’s in part because we have a very unique White House than we’ve had before. It’s more real estate kind of negotiation, which is pretty rough-and-tumble.”
President Trump has used the platform, where he has over 62 million followers, to announce major political and diplomatic decisions. Amongst some of the more consequential tweets was his announcement to raise tariffs on $200 billion of Chinese imports from 10% to 25% on May 5.
As a direct consequence of the tweet, US equities fell sharply and volatility spiked. Companies with strong links or operations connected to China, such as technology and machinery stocks, were on the front lines of the decline.
A study carried out by the University of Nottingham concluded that “the effect of a positive and negative tweet on abnormal returns is statistically and economically significant as the effect on returns usually follows the sentiment of the tweet (a positive tweet leads to positive abnormal returns).” The study also found that a positive tweet by Trump has more of an effect on the market than a negative tweet.
The effects are generally temporary, the study found, and last approximately two to three days on average. The study also suggests that the president “does indeed use Twitter as a strategic tool to influence the stock price and hence the actions of target companies.”
The other key risks Ailman is monitoring are Iranian aggression, a European recession induced by Germany and France, unrest in Hong Kong and Taiwan, consumer sentiment, program trading volatility, and Brexit.
On the plus side, of which there are many in today’s bull market, Ailman pointed out the economy has been growing at a steady pace over the past few years—about 2.5% to 3% in GDP growth annually, what he calls a “Goldilocks” economy. He added that employment statistics remain “very strong”, and unemployment claims are at 50-year lows.
Ailman also noted he’s braced for unexpected circumstances that could shake local and global markets. The threats were spread across summer heat waves, cyberattacks, earthquakes, lone wolf terrorism, the Middle East conflict, Russian aggression, and pandemics stemming from swine or bird flu.
CalSTRS CIO Warns Trump’s China Policies Could Disrupt Market