Trump Media Warned Investors About the Risks of a Guilty Verdict. They Aren’t Listening.

  • Former President Donald Trump is now a convicted felon after a long hush money trial.
  • Since then, shares of the Trump Media & Technology Group (DJT) have been volatile, mostly falling.
  • This suggests that the troubled meme stock is destined for more turbulence in the months ahead.
Trump media - Trump Media Warned Investors About the Risks of a Guilty Verdict. They Aren’t Listening.

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On March 25, 2024, even as former President Donald Trump faced criminal charges and 90 indictments, the Trump Media & Technology Group (NASDAQ:DJT) merged with the special purpose acquisition company (SPAC) Digital World Acquisition Corp (DWAC) and began trading. 

This key merger came after months of speculation that the deal wouldn’t happen. Regulatory probes into DWAC and questions about TMTG’s financing resulted in delays, and concerns abounded that one of the companies involved would pull out. Additionally, Trump’s legal problems cast doubt over the future of his company, creating turbulence for DWAC stock.

Trump Media, The New York Times points out, issued plenty of warnings about the risks connected with any of the four criminal cases Trump was involved in, including an S1/A filing that stated: “President Donald J. Trump is the subject of numerous legal proceedings. An adverse outcome in one or more of the ongoing legal proceedings in which President Donald J. Trump is involved could negatively impact” the company as a whole and TMTG’s platform Truth Social.

DJT Follows DJT

The message was clear: If the man whose initials make up the company’s trading symbol were to be convicted of his many criminal charges, DJT stock could be severely compromised. 

Nevertheless, the newly minted Trump Media stock initially traded well. It rose 40% on its first day of trading after the merger’s completion. However, the momentum would quickly prove unsustainable when Truth Social reported $58.18 million in losses, opposite only $4.13 million in sales — an early indication of future volatility.

Then, on May 30, 2024, the story broke: A jury of 12 New York City residents had found Trump guilty on 34 counts of falsifying financial statements to cover up hush money payments he made to adult film star Stormy Daniels. For the first time in the history of the United States, a former president is now a convicted felon.

At first glance, it might seem this news would send a stock like DJT plunging straight down. As I’ve reported, market experts agree that the Trump Media stock is closely tied to the man who created the company. As Donald J. Trump goes, so does DJT. But while DJT did fall on news of Trump’s guilty verdict, it didn’t tank as hard as expected. Yes, it has been bleeding value since then — albeit slowly. And when we take a macro look at this unconventional stock, this price action makes a lot of sense.

Trump Media Stock Post Trump’s Conviction

After the merger, it didn’t take long for DJT to become a meme stock. The combination of short interest from Wall Street and retail investors piling into the stock despite its well-documented financial troubles made Trump Media an easy choice for contrarian investors who like to bet on struggling companies. That said, DJT’s appeal comes largely not from its product but from its ties with the public figure to whom the company is very closely linked. The appeal of betting on Trump himself has driven a surge of interest from investors seeking to show their support for the unconventional politician. 

However, many meme stocks aren’t good long-term buys, and Trump Media stock is no exception. As The Bulwark reports, these investors are taking another page out of the meme stock playbook. Rather than attributing blame for the company’s troubles on its leadership, they are citing “naked shorting” as the reason DJT stock is falling. Other retail traders have levied these accusations against Wall Street in the past when other meme stocks have fallen, never to any results.

DJT Stock: A (Surprisingly) Slow Fall

As of this writing, DJT stock is down more than 23% since May 30, failing to garner any real momentum. But why hasn’t it fallen further? 

There are two reasons. Yes, even as his legal troubles continue to trend and his future hangs in the balance, Trump’s national profile will keep the company in full focus as the 2024 election draws near. 

The stock is also benefiting from its status among retail investors who see it as a way of betting on Trump and showing their support for him. Following the former president’s conviction, users took to Truth Social to show their support and hype up DJT stock. “It’s almost time to show them what DJTArmy is all about!!!! Buy more today and hollllllld,” one user posted.

NPR notes that other investors quickly reacted to Trump’s conviction by doubling down on shares of DJT stock. This retail attention hasn’t been enough to actually push Trump Media stock into the green, but it has helped slow the stock’s descent. 

This trend is likely to continue as the election approaches. Like all meme stocks, it will see some slight pops but won’t make any notable progress when it comes to demonstrating real value and giving serious investors a reason to believe it is turning around. 

The Bottom Line

It makes sense that DJT stock would carve out a niche for itself as a meme stock. Trump’s base has made it clear they will always support him, and retail investors who gave rise to the meme stock movement have proven they will stand by companies with no paths forward.

Now, this mentality has overlapped with the political world as Trump’s supporters rush to stand behind their candidate’s company. The most likely scenario for Trump Media stock is that it will ultimately end up hovering near the penny stock line and only seeing random growth when an unexpected meme stock rally takes Wall Street by surprise. 

Trump’s history with financial markets isn’t good. When he tried to launch his collection of non-fungible token (NFT) trading cards, their value quickly plunged. Pouring money into the struggling Trump Media stock could be an even worse decision, regardless of whether Trump ends up in the White House or a federal prison. DJT shareholders are ignoring the risks posed to them by the company itself and they will likely regret it.

On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Samuel O’Brient is a Reporter for InvestorPlace, where his work focuses primarily on financial markets, global economic trends, and public policy. O’Brient writes a weekly column on recent political news that investors should be following.


Article printed from InvestorPlace Media, https://investorplace.com/2024/06/trump-media-warned-investors-about-the-risks-of-a-guilty-verdict-they-arent-listening/.

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