Trump Media Stock Suffers a 22% Drop Days Before the Election

Source: YouTube

Trump Media & Technology Group (TMTG), the parent company of Truth Social, suffered a 22% drop in its share price just days before the 2024 presidential election, marking the worst single-day decline since the stock went public. The loss, which cut Donald Trump’s net worth by $1.3 billion, signals a sharp reversal from the recent momentum that had fueled TMTG shares.

Wild Swings Leading Up to Election Day

Trump Media’s stock (ticker symbol: DJT) has seen remarkable ups and downs since it began public trading. Over the past month, DJT skyrocketed by 270% as Trump gained traction in election polls against Democratic candidate Kamala Harris. This sharp climb reflected bullish sentiment from retail traders and Trump supporters who view the stock as a political barometer, betting on the former president’s chances of reclaiming the White House.

These recent gains were driven primarily by high-volume trading and speculation. On Tuesday, for example, DJT fell 13% during the initial trading hour, rebounded by 16% by market close, and then slipped 8% after hours. The pattern continued on Wednesday with trading halts due to excessive volatility, resulting in DJT finishing the day at $40.03—a drastic drop from Tuesday’s closing price of $51.51.

Understanding Trump Media’s Election-Driven Valuation

Trump Media’s valuation has less to do with business fundamentals and more to do with Trump’s political momentum. Even though TMTG’s revenue reached only $1.6 million this year, the company’s market capitalization surged to $8 billion recently. Compared to established media giants like Paramount, which brought in over $14 billion in revenue, TMTG’s valuation appears speculative. This phenomenon mirrors past “meme stocks” like GameStop and AMC, where valuation largely hinged on popular sentiment rather than financials.

Dan Ives, an equity analyst at Wedbush Securities, points out that DJT’s valuation lacks fundamental support, noting that Truth Social’s 698,000 monthly active users pale in comparison to larger social platforms like X (formerly Twitter) and Threads. Yet, DJT’s share price movements suggest that investors are leveraging the stock to make bets on Trump’s political success rather than on any substantial business growth.

Why the Sudden Drop for Trump Media Stock?

The recent 22% plunge underscores the volatility surrounding Trump Media’s stock as political factors play an outsized role in driving value. Several potential reasons account for this selloff:

1. Profit-Taking by Momentum Traders: With DJT’s soaring prices, momentum traders appear to have capitalized on gains by selling at higher levels, particularly after the stock hit resistance at its peak. Traders with experience in “meme stocks” know the cyclical nature of such movements, where it’s often prudent to sell before others start taking profits, potentially leaving less-experienced traders in a losing position.
   
2. Election-Related Volatility: TMTG’s valuation has become a proxy for Trump’s political prospects. Polling data showing a closer race have led to spikes in TMTG’s share price. However, as the election nears, the heightened uncertainty around election results has made investors skittish. Analysts suggest that the stock’s swings reflect traders' conflicting outlooks on Trump’s odds, compounded by the lack of clear polling leads for either candidate.

3. Technical Factors: High volatility and trading volume frequently trigger automated responses, such as trading halts and sell signals, that amplify price swings. The inability of DJT to sustain upward momentum, combined with the difficulty and cost of shorting the stock due to expensive borrowing fees, may have intensified the recent selloff. Short-sellers are unable to pressure the stock price down, allowing profit-taking to further compound downward momentum.

A Roller-Coaster Year for Trump Media

Since going public in March through a merger with Digital World Acquisition Corp., TMTG’s stock has been anything but stable. DJT shares initially spiked following Trump’s high-profile rallies and a narrow escape from an attempted assassination in July. The price later bottomed out in September when Vice President Kamala Harris entered the race, unsettling investor confidence. However, the October rebound saw DJT climb from $12.15 to a recent peak of $51.51, riding a wave of speculation that paralleled Trump’s rise in election betting markets.

Analysts caution that DJT’s fluctuations serve as a litmus test for Trump’s political journey rather than the company’s actual business potential. Despite modest revenue, TMTG's stock has captured the attention of retail investors who view it as a political statement. However, it also exemplifies the speculation that can drive massive gains—or losses—in meme stocks. As the election day approaches, the high volatility could persist, particularly with Trump’s net worth on the line and a devoted retail investor base pushing for his success. In this case, investors should exercise “caveat emptor,” or let the buyer beware.

Do you think Trump Media’s stock will rebound after the election? Tell us what you think about Donald Trump’s pet investment vehicle.

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