At 8:26 a.m. on Monday, Trump tweeted that Lockheed’s “F-35 program and cost is out of control,” referring to the defense contractor’s military equipment deals with the government.
By then, though, shares of Lockheed Martin (LMT) had already lost about $1, sparking accusations of insider trading—some suggested that Trump had tipped someone off about which company he would next target on Twitter (TWTR). How else could investors have known to sell Lockheed Martin before Trump’s tweet, which ultimately pushed the stock down nearly 2.5%?
It turns out, though, that Twitter is not only the place to read about the President-elect’s latest idea, it’s also a good tool for predicting what Trump will tweet about next—and what stocks are about to fall. And while many investors sold Lockheed Martin shares after Trump tweeted, hedge funds likely dumped the stock sooner.
Hedge funds are increasingly using analytics from companies like Dataminr and Social Market Analytics to uncover trading signals buried in the firehose of tweets and other social media posts. Fidelity customers, for example, can add Social Market Analytics’ sentiment indicators derived from social media to their stock dashboards, along with traditional metrics such as volatility.
And there were plenty of clues that Donald Trump was likely to attack Lockheed Martin, which hedge funds no doubt picked up on. For starters, Trump had made almost identical comments on Fox News Sunday an entire day before he tweeted them. “If you look at the F-35 program with the money, the hundreds of billions of dollars, and it’s out of control,” Trump said on the weekend television show (see clip posted on Twitter below).
Shortly after 8 a.m. on Monday, Twitter sentiment indicators from Social Market Analytics and Bloomberg suddenly spiked negative, while trading volume abruptly shot up 58-fold at about 8:08 a.m.—well before Trump’s tweet.
There were a few reasons the sentiment turned negative so early. Around 8:02 a.m., several Twitter accounts began posting alerts that Zacks Investment Research had downgraded Lockheed Martin stock. And Trump’s statements on Fox began circulating both on Twitter as well as in an article published Sunday by Aviation Week, which was later updated with the President-elect’s tweet.
Then at approximately 8:12 a.m. Monday, about 14 minutes before Trump tweeted about Lockheed Martin’s fighter jets, influential media personality Jim Cramer of CNBC expressed surprise that the market seemed to be ignoring the Fox News segment: “LMT shrugging odd ‘out of control’ cost comment on J-35 by Trump,” Cramer wrote in a tweet (which features a typo for F-35) that has since been deleted, according to people who saw and saved a record of the original tweet.
Those tweets were enough to trigger red flags among the social sentiment detectors, which in turn feed into hedge funds’ algorithms programmed to sell when Twitter negativity crossed a certain threshold. At 8:05 a.m., for example, Bloomberg’s Twitter sentiment metric jumped from 0 a few minutes earlier to -0.24; it would not reach that level again until 8:36 a.m.—10 minutes after Trump’s F-35 tweet. Meanwhile, Social Market Analytics, which scores online chatter about stocks based on how positive or negative it is compared to the norm, noticed its metrics trend negative beginning at 8:15 a.m.
For some traders—or computerized trading algorithms—just seeing those sentiment indicators head downward would be enough to sell Lockheed Martin shares. No need to wait and see if and what Trump tweets next: For hedge funds, the earlier they can act and stay farther ahead of the rest of the market, the more money they can make.
“The amount of people using Twitter specifically for finance has increased,” says Social Market Analytics CEO Joe Gits. “The predictive power of Twitter is really maturing.” Hedge funds are beginning to create and monitor lists of stocks vulnerable to Trump or other political commentary, just as some did with pharmaceutical stocks that swooned off Hillary Clinton tweets. Trump’s ability to move the market with his tweets has driven more investors to use social media analytics, adds Gits—which further amplifies the market’s reaction to tweets as even more people trade off them. “He couldn’t be any better for my business—keep tweeting away, Mr. President,” Gits says.
But you didn’t necessarily need to work at a hedge fund or have access to professional trading signals to make money from Trump’s tweet. The biggest predictor actually came a week ago, when Trump tweeted to “cancel” plans for a new Air Force One because “costs are out of control” for the Boeing (BA) plane. Scores of people on Twitter responded to the President-elect suggesting that he also cancel Lockheed Martin’s F-35 program, which is now expected to cost more than $1 trillion overall.
If there’s anything we’ve learned about Donald Trump, it’s that he likes to please the crowd. Indeed, the day after the Boeing tweet, the editorial board of the Standard Examiner, a Utah news outlet, made a forecast that would soon prove true, in an article titled, “What if Trump’s next tweet is about the F-35?” Trump soon dialed up his criticism of the fighter jets during public appearances, such as at a Dec. 9 rally in Grand Rapids, Mich. last week.
Trump supporters applauded the comments—though even those who are amateur investors could foresee how Lockheed Martin’s stock price would react. “Yessss @realDonaldTrump calling out the F35 program,” one person tweeted during the rally, then followed up with a second post: “Although I shouldn’t be too happy. I got a couple shares in $lmt.”
Now, Wall Street is already predicting that after Lockheed, Walmart (WMT) will be Trump’s next target. So far, Walmart’s social media sentiment remains positive. But if that changes, expect hedge funds to get out faster than Trump can tweet about it.