Social Media’s Impact On The Stock Market

November 6th, 2011 | Filed under: Trader Lessons

There is no denying the educational impact social media has on stock trading. Websites like Stocktwits have basically changed the landscape for how traders share ideas… but is social media starting to have an impact on the actual direction of the market?

Now implying that a single tweet could intensify enough trading action to actually manipulate a stock would be somewhat of an ignorant statement at this point. What I am more trying to get at is has social media altered the way we should analyze companies?

Still confused?

Recently many of the top banks have been toying with the idea of imposing some sort of fee on debit card users; however, over the last couple of weeks ago most if not all of those banks have dropped that idea due to the backlash by many customers.

The question is whether 20, 10, or even 5 years ago banks would have carried out this plan. Social media has essentially given the average joe a voice. Now an individual can be his or her own CNBC. If a company does something customers do not like, then the backlash grows much more faster than it did years earlier. In the case of these banks, the backlash can actually alter business decisions.

In short, thanks to social media there is a form of accountability but also a sense of jitteriness. Not so good news can get escalated into terrible news and bad business decisions can get reversed. There is no more sense of finality. It is a new game and stocks do not move like they used to.