by Arthur Stupay

May 9, 2018

The market has been incredibly volatile in recent months, with some market moves of 200 to 400 points (close to 2 percent) on the Dow Jones Industrial Average. This is against the background of highly business-friendly tax reform, which is expected to boost reported earnings and cash flow in 2018.

Stock market analysts attribute these almost daily market gyrations to the uncertainty over the impact on American business of tariffs on steel and aluminum from China and some other countries, excluding Canada and Mexico. Other tariffs are threatened by the Trump Administration on a wide range of products, impacting an estimated $50 billion in trade. Indeed, in recent tweets and comments, President Trump has indicated that if China continues to unfairly inhibit U.S. exports, he will propose even more tariffs on their exports to the U.S., maybe totaling $100 billion. The market has interpreted this as the beginning of a destructive trade war, which could end up hurting the American economy.

It would clearly reduce sales of major U.S. exporters, especially those in agricultural products, such as soybeans, agricultural equipment, among others; also, aircraft and aircraft equipment are expected to be impacted. Most analysts believe more American companies would be hurt than helped by the high tariffs. The market in turn is interpreting such policies as self-destructive for U.S. businesses and the economy.

The market volatility has one major beneficiary: the stock trading firms. According to The Wall Street Journal, the five largest trading firms derived $70 billion in trading revenues in 2017, which are expected to grow markedly in 2018. Clearly, firms facilitating trading from hedge funds and foreign investors are enjoying the market gyrations. But companies that are in process of raising equity capital in an offering may be deterred, except for recent high-profile IPOs such as Spotify and Dropbox. Also, banks will become more cautious, because the risks for business, faced with the loss of markets, will be greater. Consumers may also become more cautious as their portfolios decline, impacted by the wealth effect.

What can/should public companies do in this environment? Can IR help to mitigate the negatives for the companies?

One reaction would be to attribute all of the stock decline to external forces, including U.S. trade policy. Also, many companies may defer meetings with analysts until there is more stability and clarity. Others may become more cautious in their commentary, fearing that whatever is said will prove wrong.

While there are no definitive IR strategies that will keep stock prices stable, there are some actions that would be welcome by investors, even if the stock is down.

  1. Increase communication with both small and large investors, emphasizing market and product developments. This could include information on product and service introductions, marketing and production plans, including new plants and expansions.
  2. Continue to visit both national and regional institutional shareholders on a regular basis. Visits will be welcome in a time of market gyrations because investors want reassurance about the capability and plans of the company.
  3. Respond promptly to stockholder inquiries about the company, using the inquiries as opportunities to understand and address shareholder concerns and reactions to share price fluctuations.
  4. Check social media sites for any indications about issues and problems shareholders have with the company, which perhaps have not expressed through direct contact. Dix & Eaton has the capability to monitor a number of such sites to gain information on shareholder postings.
  5. Provide information on how new national policies or programs might impact the business, such as tariffs and taxes (including those proposed on internet transactions).

This strategy makes sense not just during market-volatile periods. These actions should be part of any solid, ongoing investor relations and communications program. Contact me if you’d like to talk about what you can and should do even when facing such market volatility.