Idea of the Day Does Donald Trump still matter for markets

What: Watch Amazon shares when US markets open later today. Trump tweeted early on Wednesday that Amazon is damaging other “tax paying retailers” and this is causing “many jobs to be lost!” This is fairly vague, we don’t know who is being wronged by Amazon, according to the President, or what he plans to do to Amazon to reprimand the company. However, any potential reaction in the Amazon share price should be viewed as a gauge of the President’s influence on markets via Twitter.

After last year’s Presidential election, the market was very sensitive to the President’s tweets. Back in January when the president lambasted Boeing its share price fell sharply. However, since then Boeing has surged and has risen more than 50%, suggesting that the President’s remarks about individual companies has absolutely no long term impact on a company’s share price.

How: At this critical juncture for the Trump administration, with corporate America desperately distancing themselves the US Commander in chief, we doubt that Jeff Bezos is particularly worried about this tweet from the President. But, there are two things that could be worth watching.

Firstly, if we get a muted reaction to the latest Trump tweet, then it suggests that markets have become less politically sensitive in recent months. This has ramifications for markets as some major political obstacles are on the horizon, including Trump’s inability to get his economic agenda off the ground in Congress, and also the debt ceiling will be reached sometime in September, which could lead to some wrangling in Congress about how to fund the US government. If the markets have become more immune to political infighting and stagnation then markets may continue on their journey higher without paying too much attention to the political back drop in the coming months.

However, the second point could be more worrying for Amazon. The US is the latest major economy to call out firms like Amazon who use perfectly legal accounting methods in order to reduce their tax bills. If Trump wants to make a difference then he will need to target the accounting methodology. This is one policy that could win support on both sides of the isle in Washington, but which could have big ramifications for corporate America and for US share prices.

Thus, even if the markets shrug off today’s tweet from the President, if Trump starts a campaign to make Amazon pay up then its share price could take a knock down the line. When the President tweeted about Boeing he was talking about prices that the company charge for a certain product, today’s tweet is a much larger criticism of the way Amazon does business and how it is unfair on other retailers. This could open a can of political (and expensive) worms for Amazon, so we can’t dismiss today’s tweet as being without consequence for the online giant.

Since Amazon has been a bellwether of US stock market performance this year, rising an impressive 33%, if its stock price comes unstuck on the back of the President’s remarks then this could be bad news for the entire index. That is not a given at this stage, but it is worth watching out for.

Chart 1: Boeing not held back by Tweeting Trump 

Source: City Index and Bloomberg