Ironically, it was one year ago that my Real Money column focused on how the actions taken by governments and politicians often can backfire and have the opposite of the intended effect, especially as it applies to free markets.
Case in point: President Obama's vocal stance on guns drove panic and fear among gun owners and prospective gun owners. The threats of legislation in the face of tragedy drove legal gun and ammunition sales through the roof. While Obama lacked the ability to do much in the way of legislation, the threats of legislation and executive actions were sufficient to create a buying frenzy. As a result, gun and gun-related stocks soared during his presidency. That's a legacy that I'm sure he did not want, but definitely had a hand in, in part due to a lack of knowledge about how free markets work. He also overestimated his ability to exact change on the issue.
Take a look at what has happened to gun stocks since the election. Perhaps most notably, Sturm Ruger (RGR) fell 25% the day after the election. The pressure is now off with a seemingly more pro-gun president in office, and the rush to buy has evaporated, at least for now.
Now, we've entered a new phase of the market-political dynamic, where it's not just words, but tweets that are exerting a huge impact on intraday trading. Trump speaks (or tweets) a few negative words about a particular industry or company and the reaction is immediate. On Wednesday it was negative comments about pharmaceuticals that sent many sliding intraday. Previously, it was select defense stocks, such as Boeing (BA) and Lockheed Martin (LMT) , and who knows what tomorrow will bring. (Lockheed Martin is part of the Dividend Stock Advisor portfolio.)
The danger for investors comes in paying too much attention to what's said, acting on every word and focusing on the short term. Too often the knee-jerk reactions are just that, and the stocks in question often recover quickly.
It will be interesting to watch how this plays out, but somewhere there's are traders who have recognized that there may be opportunities in buying the latest companies that are the subject of negative statements once those comments have been made and then selling quickly in the ensuing recovery, if there is one.
That's a short-term strategy that I don't want any part of, as it goes against my grain and it is very risky in my view, but it will be taken advantage of by others. That's how the markets work (or don't). Welcome to a new era in investing.