The surprise election of Donald Trump in 2016 sent shockwaves through the global shipping community. It also sent U.S.-listed shipping stocks soaring. Pricing and volumes went completely haywire. In a matter of days, some shares rose ten or twentyfold. Some volumes rose fiftyfold.
Could this year’s presidential election spark similar tumult for shipping equities?
The morning after (the last election)
Early on Nov. 9, 2016, the morning after the last presidential election, shipping financiers, analysts and journalists convened at a Marine Money forum at The Plaza Hotel on Central Park South in Manhattan.
Under vaulted, muraled ceilings and amid gold-leaf-painted columns, bleary-eyed attendees sat nursing coffees in a quiet state of shock. When Clarksons Platou Securities analyst Omar Nokta took the stage, he marveled, “When you think Governor Schwarzenegger sounded funny — this is a whole new level.”
Wilbur Rose gave the keynote address. At the time, he was not secretary of Commerce. He was an economic adviser to the Trump campaign and a private-equity billionaire whose funds owned stakes in Diamond S Shipping (NYSE: DSSI) and Navigator Gas (NYSE: NVGS).
“As you can appreciate, I’m a little tired this morning,” Ross told the crowd. “I wrote two different speeches. One if Hillary won and one if Donald won.”
He then proceeded to lay out details of the Trump trade philosophy and assured attendees: “People say he’ll just lunge in and put on all kinds of tariffs, which will make for a World War III of trade. Fear not. This is not going to be a blunderbuss.”
It’s a good guess that Ross hadn’t expected Trump to win either. At one point he mistakenly referred to “President-elect Clinton.” He quickly added, “Please don’t repeat that.”
And then stocks went ballistic …
Over the following days, what Forbes dubbed “The Donald Trump Shipping Stock Boom” blasted off. Many shipping stocks, dry bulk stocks in particular, experienced unprecedented gains.
When comparing the opening price on Nov. 9 with intraday highs hit Nov. 15-17, the numbers look like typos. Shares of DryShips (which went private in 2019) rose at one point by as much as 2,142%. In trader parlance, it was a “22-bagger” over just four days.
Globus Maritime (NASDAQ: GLBS) jumped as much as 1,296% (a 14-bagger over five days). Diana Containerships, which is now Performance Shipping (NASDAQ: PSHG), surged 1,084%. Euroseas (NASDAQ: ESEA) rose as much as 595%, Seanergy (NASDAQ: SHIP) by 322%, and Top Ships (NASDAQ: TOPS) by 272%.
Trading volumes, particularly in dry bulk stocks, reached a crescendo Nov. 15-17. In some cases, including for DryShips, more shares traded hands in a single day than the total number of outstanding shares.
The combined daily shares of eight stocks caught up in the action — DryShips, Euroseas, Top Ships, Seanergy, Eagle Bulk (NASDAQ: EGLE), Navios Holdings (NYSE: NM), Diana Containerships, Scorpio Bulkers (NYSE: SALT) — was over 50 times higher on Nov. 15 than on Nov. 9.
At the peak of the frenzy, NASDAQ halted trading at “limit up” repeatedly for multiple shipping shares.
Then the wave retreated. Volumes and share prices pulled back through November and into December.
Why would Trump’s surprise election win cause dry bulk stocks to skyrocket?
Analyst Michael Webber, then with Wells Fargo, opined that “microcap outperformance started with a thematic risk-on Trump rotation, followed by retail momentum and short squeezes, with an ever-increasing push from quant-driven momentum.
“Given the sheer size of the volume and continued relentless pricing movements,” Webber said that “momentum-based algorithms” were “likely a very significant catalyst.”
Ihor Dusaniwsky of S3 Partners wrote in a research note on the “spectacular” moves in DryShips’ stock that “DryShips has turned into a game of musical chairs. Except for the last traders, who will be sitting and holding onto their shares as the bubble eventually bursts and they lose.”
Could it happen again?
In 2016, the dry bulk market was historically bad — even worse than this year, which has been terrible. Dry bulk microcaps were out of favor and spiked on frenetic retail trading after the Trump surprise win flipped the switch from “risk off” to “risk on.” Then the algorithmic trading platforms juiced the numbers.
In 2020, dry bulk names are once again out of favor, along with most names in other shipping sectors, including tanker stocks.
There are also multiple penny-stock shipping names with highly volatile pricing. These include three involved in 2016’s mini-boom: Top Ships, Globus and Seanergy.
There’s also a volatility driver that wasn’t in the mix in 2016: the day traders of Robinhood, who have been active in the shipping penny stocks in 2020, as well as in Nordic American Tankers (NYSE: NAT).
What seems to be missing from the equation this time around is a surprise catalyst to the upside. The likely catalysts seem skewed in the other direction.
Trump policies and freight rates
The post-election stock-price spike in 2016 was ultimately a flash in the pan, albeit a spectacular one.
Over the past four years, investor sentiment toward shipping stocks has progressively worsened. Shipping shares have shed significant value. Market caps are shriveling.
The most significant effect Trump administration policy has had on freight rates may have been partly unintentional.
In late September 2019, the administration sanctioned China’s COSCO (Dalian), a division of Chinese shipping giant COSCO. Due to the opaqueness of COSCO’s ownership structure, the world’s charterers immediately ceased booking cargoes on any COSCO tanker, not just those of COSCO (Dalian) division, magnifying the rate effect. With less competition, nonsanctioned tanker owners could suddenly charge rates of over $150,000 per day.
Meanwhile, Trump’s trade policies have been a persistent overhang on shipping-stock investor sentiment. As Jefferies analyst Randy Giveans said in an interview with FreightWaves last year, the sentiment overhang is “certainly there. When you think trade wars and slowing global trade, you think shipping companies.”
As for Ross’ assertion at The Plaza Hotel — that Trump would not “lunge at all kinds of tariffs” — that’s not the way it turned out. Click for more FreightWaves/American Shipper articles by Greg Miller
MORE ON SHIPPING STOCKS: A lost decade for shipping shares: see story here. Shipowners with shares worth pennies rake in millions: see story here. Robinhood’s topsy-turvy Top 10 shipping stocks: see story here.