Shares of Trump’s media company have risen sharply: why online bookmakers prefer Trump to Harris

Shares in Donald Trump’s media company rose sharply on the last day before the election. On Monday, Trump Media & Technology Group, the parent company of Truth Social, rose by 16% for no apparent reason. (For reference: Truth Social is a social network created by Trump). In the week before the election, Trump Media shares received a large influx of retail traders and became the most discussed on Reddit’s WallStreetBets, with more than 17,000 mentions this year.

Stock market as a barometer of social and political sentiment

Since the initial public offering of Trump Media shares in March, they have been highly volatile: their value quadrupled in five weeks and then fell by 41% in three trading sessions. Investors consider such stocks unpredictable and risky. If this joke is appropriate, then in a sense, this characteristic is inherent in Trump himself.

In October, stocks rose by more than 160%, the first positive month since March. Since the beginning of the year, they have risen by more than 140%. Overall, Trump Media has received the largest daily inflows from retail investors this year.

Traders are using Trump’s shares as a barometer of his re-election chances, ignoring the company’s financial performance, which is inferior to rivals like X, TikTok, and Instagram. Traders assume that a second Trump presidency will improve Truth Social’s business prospects. Shares listed under the DJT ticker are seen as an indicator of Trump’s prospects of returning to the White House. Wall Street research firms have included these stocks in their list of stocks to watch.

Despite the tight race, online bookmakers favour Trump over Harris. Analysts attribute the stock’s growth to this trend. When Harris strengthened her position, Trump’s shares plummeted, leading to a $2.4 billion reduction in his wealth in three days. However, Monday’s growth allowed him to win back about half a billion dollars. Experts note that volatility may persist until the election results are announced.

By the way, the US president and vice president are largely exempt from government rules on conflicts of interest. Trump, if elected, will be the first to hold office while controlling a public company.

His DJT holding accounts for almost 3/4 of his net worth. Trump has said he has no plans to sell his stake. ‘I don’t think there’s been a specific case where a potential US president has had such a direct economic impact on certain firms,’ said an expert from the University of California, Irvine.

How Trump’s Truth Social appeared and why it lost its value

After the attack on the Capitol on 6 January 2021, Donald Trump was blocked from the main social media platforms – Twitter (now X) and Facebook. This prompted him to create his own platform, Truth Social, under the auspices of Trump Media & Technology Group.

Trump’s subsequent return to Twitter and Facebook reduced the uniqueness of Truth Social, as he again gained access to his millions of followers on these social networks. This has led to a decline in the value of Truth Social in the eyes of investors and analysts, who now see less growth potential for the platform.

Stock fluctuations as an indicator of investor confidence in Trump’s chances

Michael O’Rourke, chief market strategist at JonesTrading, noted that Trump Media & Technology Group shares are speculative. Investors use them to express their sentiments about the election. The expert stressed that the stock’s fluctuations do not reflect Trump’s actual chances of re-election due to its high volatility and speculative nature. He called them ‘a thermometer that measures the temperature at a certain point in time’.

Matthew Tuttle, CEO of Tuttle Capital Management, agreed that the stocks reflect investor confidence in Trump’s chances. The results of yesterday’s vote will be critical to the stock’s success. If Trump is re-elected, Truth Social could become an important platform for the president to communicate, like X (formerly known as Twitter) was during his first term.

‘If he loses, the stock will go to zero,’ Tuttle predicts. ‘If he wins and the stock stays at this level (below 30), it will go up in the short term.’

Political bet on Trump’s shares

Political betting on celebrity stocks, such as a presidential candidate, reflects a situation where investors bet on the outcome of an election, hoping to profit from changes in the political climate. On Election Day, Trump’s shares fell by around 1%, extending a period of volatile trading.

Shares of Trump Media & Technology Group rose by more than 15% on the day before falling sharply after 14:30 ET, and then began to climb back around 15:00 ET, down around 8% at the lowest point of the day.

The company was recently valued at around $7.8 billion. Truth Social also attracted investors’ attention because the nominee’s share, i.e. Trump himself, was valued at more than $5 billion. He owns about 114 million shares, which is more than half of the company.

Over the past month, the stock has risen by more than 200%, coinciding with polls showing that the election between Trump and Kamala Harris will be extremely close. The stock hit a high of $51.51 on 29 October, but fell by more than 20% on 30 October to close at $40.03.

In 2023, Trump Media reported a loss. In recent months, the stock has been supported by investors who have been betting on Trump’s victory. If Trump loses, the share price is expected to plummet, as many traders value the stock based on Trump’s brand and political success rather than Truth Social’s business.

‘Placing financial bets based on election results is not new,’ commented a professor of finance at the University of California, Irvine. But when it comes to stocks like DJT, ‘there’s no fundamental reason for these stocks to be at any price close to the price they are.’

This phenomenon is called ‘political risk’ or ‘political beta’. This phenomenon occurs when investors bet on the outcome of political events, hoping to profit from changes in the political climate. In this case, investors backed stocks hoping for a Trump victory and expected stock prices to plummet if he lost. This is a very risky approach, as it is based on speculation rather than on the company’s substantive business performance.

Political risk in finance refers to the uncertainty associated with political events and their impact on financial markets. Investors often make bets on how political changes may affect the value of stocks or other assets.

When investors buy stocks based on expected political outcomes, this is known as political betting or political outcome-dependent investing. For example, if investors believe that a certain candidate may make decisions that will have a positive impact on a company, they may buy shares in that company, hoping for a price increase if the candidate wins.

This is a highly speculative strategy, as the outcome of the election may be unpredictable and the company’s business performance may not meet expectations related to political changes. For example, if Trump does not win the election, Trump Media shares could quickly lose value as investors who bought the stock based on political predictions may start selling it.

Some experts believe that there is no reason for Trump Media to be publicly traded due to its weak business fundamentals and high price-to-sales ratio. The trade is based solely on speculation. ‘Trump Media has no fundamental value – it is worthless. That’s why the election results have such a big impact on the share price.’

‘We’re trading this like GameStop on steroids,‘ said Freedom Capital Markets’ chief global strategist. – ‘Kudos to those who are making money on it, but in the long run, the performance is meaningless.

Do you think Trump’s shares are another overvalued bubble or a solid asset worth investing in?

Tatiana Morarash