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Traders scheme to cash in on Trump tweets

NEW YORK — President-elect Donald Trump issued a single tweet blasting defense contractor Lockheed Martin Corp. at 8:30 a.m. on Monday. By lunchtime, he had wiped $4 billion off the company’s market value.

Wall Street traders began dumping the company’s stock after Trump blasted its fighter jet program: “The F-35 program and cost is out of control,” he tweeted. “Billions of dollars can and will be saved on military (and other) purchases after January 20th.”

With his 17 million Twitter followers and upcoming inauguration to the most powerful job in the world, Trump presents challenges and opportunities that Wall Street has never seen before. Traders not only have to monitor the president-elect’s every word; they also have to follow his Twitter feed. Some are already crafting strategies to cash in on the president-elect’s penchant for bashing individual companies.

“This is a new type of risk, call it presidential tweet risk,” said Jack Ablin, chief investment officer at BMO Private Bank. “And it’s the largest companies that enjoy a global supply chain, relatively low tax rate and have marshaled Washington to their benefit that seem to be at the most risk. But everyone now has to keep their Twitter feed right next to their Bloomberg terminal.”

On Wall Street, a person who can move a stock is called an “axe.” Trump, with his itchy Twitter finger, is quickly emerging as the biggest axe there is. Move quickly after a Trump tweet and there are potentially millions to be made. Miss out on one, or misjudge its impact, and your portfolio could take a surprise hit.

Hedge funds and other high-speed traders now have a new opportunity to bet against the companies Trump criticizes and for those he praises. Savvy traders can now also expect the market to overreact to Trump tweets and then capitalize when battered shares bounce back.

And it’s not just single stocks.

Trump’s Lockheed tweet on Monday sent the entire Dow Jones U.S. Aerospace & Defense index sharply lower at the opening on Wall Street. By afternoon, the index had recovered somewhat and was down around 210 points, or 1.6 percent.

The same pattern happened last Tuesday, when Trump jolted Boeing’s stock with an attack on its Air Force One contract. Boeing shares and the rest of the aerospace industry sold off in the morning then rallied back hard. Boeing finished the day up slightly. Long-term investors would have noticed no real difference in their holdings.

“It’s uncharted territory we’re in, that’s for sure,” said Stephen Massocca of Wedbush Equity Management. “You have to take each tweet and analyze it. Because he tends to lash out. But Boeing just hit a new high today, and I imagine the same will wind up being true for Lockheed. So if he does initially move the market, a smart trader can take advantage of that.”

Some traders are already working on programming Trump’s tweets into their computer trading models.

“There are people diligently working to create algorithms for Trump’s tweets, and if he continues to increase the size of the data set then we’ll likely see full automation sooner than later,” said Zachary David, a senior analyst at KOR Group, a consulting firm. But the strategy carries big risks, he said.

“Automating trades based on algorithmically interpreting the language of tweets is difficult because there is a high cost to getting the direction wrong,” David said.

Trump’s penchant for going after individual companies is unique in American history. Other presidents have browbeaten industries — President Barack Obama for instance took several shots at Wall Street — but few have rocked individual stock prices like Trump has in the weeks since his surprising White House win.

“We’ve seen presidents lean on companies very occasionally in the past — for instance, JFK pressing steel companies to reverse a price increase and LBJ trying to settle strikes,” presidential historian Michael Beschloss said of Trump’s approach. “But that did not resemble what seems to be President-elect Trump’s intention to do this much more frequently and as a prominent element of his economic policy.”

The stock price shifts may not benefit the president-elect himself. Transition spokesman Jason Miller last week said Trump sold all of his extensive stock holdings in June. But so far, Trump’s team has not produced any evidence of the stock sales.

But people in Trump’s inner circle could benefit from his tweets if they know he’s about to target a company before the public does. That would conceivably run afoul of insider trading laws, which a 2012 law extended to government employees. Former SEC attorneys said it’s unlikely the agency would investigate Trump’s aides for insider trading. The Justice Department would also have the authority to prosecute them.

“The SEC wouldn’t touch that,” said Stephen Crimmins, a former SEC enforcement division attorney who is now with the law firm Murphy & McGonigle. “The nature of the information is not specific enough to the company, but is rather of a political nature.”

Isaac Arnsdorf contributed to this report.

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