What do Elon Musk and Robin Hood have in common?
In a word, influence. Both Musk and the platform Robinhood (not the mythical robber of the rich, giver to the poor) can send markets into a frenzy.
Gossip and rumours have always affected the world’s stock markets, but now social media has multiplied the effect several times over.. Millions can be wiped off a company’s value by a single tweet, or conversely inflated through activity on social media platforms. Nowadays, anyone sat in their armchair can buy and sell shares on one of the various different apps available and they are watching social media. That’s why effective communication from companies is more important than ever to stay ahead of the stock market game.
How One Single Tweet Can Affect Share Price
Elon Musk is probably the most notorious and prolific Tweeter when it comes to manipulating markets. In May 2020, he tweeted, “Tesla stock price is too high imo.” That same day the company’s stock price closed 10% lower. Regulators are still in dispute with Musk over the legality of his tweets, arguing that tweets from the company’s founder will inevitably move its share price above other factors, but these legal wrangles haven’t deterred Musk at all. In fact, he moved on to another sector closely bound up with the Tesla empire that isn’t regulated in the same way—cryptocurrencies. With a few carefully chosen words he has been sending the price of bitcoin, and dogecoin, up and down—seemingly at will. The final outcome of the lengthy battle between Musk and the SEC is likely to have an impact on the relationship between social media and the stock market.
Social Media Platforms and the Stock Market
January 2021 saw a bizarre and unexpected plot twist in the stock market story when an army of Redditors took on the hedge fund investors of Wall Street and sent the share prices of GameStop skyrocketing with an online buying frenzy that turned the market on its head and forced a halt in trading. Platforms such as Robinhood have allowed beginner and younger investors to have access to the market via apps that offer commission-free trades and fractional shares that remove the need to make a large investment. Many such users use of social media to gather information on their investment targets. Companies need to include this target audience in their social media strategy.
Does a Company’s Social Media Activity Matter when it Comes to the Stock Market?
In short, yes. Investors take information from a host of online sources to make their decisions, including social media platforms, Twitter accounts of channels linked to investment firms and news media, to name just a few. More and more brokerage firms have begun to offer tools that analyse or collect information from social media sources to assist their investors in their decision-making. StockPulse, for example, is working with Nasdaq’s US Market Surveillance team to incorporate social media analytics into its surveillance system, such as monitoring the use of spam or bots for attempts at price manipulation.
How Can I Ensure that my Company’s Social Media Activity Stays Ahead of the Stock Market Game?
Your social media communication needs to be reliable and trustworthy. Consistent, informative and insightful posting is key to bringing your business long-term, stable results in a volatile market. Your focus should not just be on your own posts, it is also essential to monitor and analyse what is being posted about you. Some social media platforms have evolved into online trading clubs for gathering trade ideas, swapping tips, and inflating stocks. And the keyboard is most definitely mightier than the sword when Twitter’s 280-character limit can cause share prices to rocket or plummet in a matter of hours.
If you would like to discuss how an effective social media strategy can boost your investment and stock market capabilities, contact our experts at Word & Pixel for an informal chat to find out how we can help you achieve your goals.