Musk vs. The SEC: Social media influence on the stock market

Musk vs. The SEC: Social media influence on the stock market

February 16, 2022

In recent years there has been an influx of new investors into the stock market. This should come as no surprise because there are a variety of developments that have made it extremely attractive to invest. We just came off one of the largest bull runs in U.S. history. Online trading platforms like Robinhood and Webull have made it easier than ever for younger people to start getting their feet wet. One of the greatest contributors to this kindled interest in investing in Millennials and Gen X is social media.

People are sharing their thoughts, projections, and investments all over the internet. I am not talking about investment companies and advisory firms. But rather I am talking about retail investors and celebrities who are becoming much bolder in regards to publicizing their investment decisions and ideas. Of course there is also the WallStreetBets Reddit page which is the go to source for stock picks for thousands of retail investors. One buy call from the infamous social media page can send the price of a stock soaring as we have seen in the past. Of course, the opposite is also true when they send out a call to sell. While this is incredibly influential and maybe questionable behavior, the administrators of this site are not principals of the companies whose stock they are influencing or even connected to the company in any way other than owning their stocks. While they have given the SEC some food for thought, they have not given them as many headaches as a certain polarizing and outspoken founder of a publically traded company. This man also happens to be the richest person in the world.

Before we continue the rest of this blog I want to note that I will not be speaking in favor or against the actions of Elon Musk. Whether you love the guy or you hate him, we are going to stick to evaluating how his recent actions and his ongoing feud with the SEC could affect the way influential people effect change in the stock market. So I will not be making any value judgements on his actions, his belief systems, or giving any sort of recommendation on Tesla stock. Ok, let’s continue.
With 73.4 million Twitter followers, Tesla owner Elon Musk has a massive audience anytime he decides to air his thoughts onto the social media platform. As they say, with great power comes great responsibility. Musk is known for being unafraid to share his opinions on controversial issues and purposefully posting content that he knows will ruffle some feathers. Those types of posts aren’t what has gotten him in hot water with the SEC.

This first started in August of 2018 when Musk tweeted that Tesla was close to reaching the funding to go back to being a private company. Their stock price jumped the afternoon he crafted that tweet. Over the next year there was much legal debate between Musk and the SEC as the SEC believed he was manipulating the stock price of Tesla and had used false information to do so. In the end they agreed that Elon needed to be monitored in his twitter activities and it was decided that all tweets regarding his company and its financial health had to be preapproved by someone internally before he could press “send”. This was meant as a safeguard to reel and rein the billionaire in a bit. It hasn’t really worked. In November of 2021, Mr. Musk sent out a tweet polling his followers on whether or not he should sell a portion of his ownership in Tesla. There was a massive share sell off because investors wanted to get out before Musk’s gigantic sale tanked the share price. Tesla’s share price dropped because of the reaction from investors.

So why do I bring this all up? The thing that is so interesting about all of this is that there has never been this powerful of a person who has been this open and accessible on a global scale. Social media has given anybody, even those who usually would have a more private life, the ability to air their thoughts about anything. Where it gets even more interesting is if we start seeing people using their influence to try and enrich themselves and their companies. Musk probably won’t be the only billionaire company owner to actively use social media to make himself accessible to the public. Whether or not his case was purposeful or simply playful, it is not out of the realm of possibility to believe that there will be people who will use social media to try and influence their followers and investors in different ways. I do not personally believe social media will die out any time soon and thus it will continue to be a breeding ground for influential people to do what influential people do best: Influence people.

The issue will be when people in power begin airing non-public information to manipulate the stock of the company in which they have power purposefully. Again, social media provides a massive platform for such people to do so. The SEC will have to continue to learn how they can ensure that principals, majority shareholders, etc. cannot use their massive followings to manipulate the markets whether purposely or innocently.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.