Twitter stock dived earlier today on the deepening feud between the platform and president Trump, which could see social media slapped with new regulations.

Twitter was down over -4% in pre-market trading, but has since pared losses to -2%. Facebook had also fallen nearly, trading down -2% before the opening bell, but has now edged into positive territory.

The losses come after the White House announced that Trump would sign an executive order today targeting social media companies, with the aim of addressing what he alleges is bias in their strategies for content moderation.

Why is Trump targeting Twitter?

A few days ago Trump posted a tweet which contained several claims about postal ballots. Many states are expanding their postal balloting because of concerns that in-person voting could lead to a spike in Covid-19 infections.

Source: Twitter

Twitter used its fact-check feature on the President’s tweet. A small blue exclamation point is displayed under the tweet, alongside a link that reads: ‘Get the facts about mail-in ballots’. The link redirects to a page calling the claim ‘unsubstantiated’ and countered assertions in a section entitled ‘What you need to know’.

Unsurprisingly, Trump isn’t happy about it. The president has accused Twitter of interfering with free speech and censoring conservative voices, and even of interfering with the 2020 presidential election.

What can Trump’s executive order do?

According to CNBC, the order would direct the Federal Communications Commission to review certain regulations under the Communications Decency Act. The law in question, known as Section 230, is often criticised by both sides of the political spectrum.

It states that online platforms are not liable for the content that their users post, and also that they can moderate “objectionable” material without being viewed as either a publisher or a speaker under the law. Some conservatives had claimed this allows the platforms to remove views that they disagree with.

The law was originally introduced to protect growing tech companies. Platforms like Twitter and Facebook would never have made it off the ground if they could be held liable for user’s posts: they’d have been sued into oblivion a long time ago. But having to vet every post would be impossible: currently almost 9,000 tweets are posted every second.

As we noted this morning, Trump can put more of a regulatory squeeze on companies and raise their costs. He could push for changes to the current laws so that it is easier for regulators to take action against tech companies who are deemed to be violating the free speech of their users.

More pain to come for Twitter stock as US election approaches?

While Twitter and Facebook have recouped the worst of the day’s losses, it could be the start of an uncomfortable period for the platforms. With the US election just a few months away, a lot of content on both sides will likely be reviewed, challenged, and removed by social media companies. When Republicans are the ones being censored, Trump’s ire will grow.

Trump could see going after social media companies as another way to rally his fanbase, but it’s worth remembering that the president has reaped the benefits of the platform. He has 80 million followers – any action of his that materially damages the platform also damages his own reach.

Trump’s actions represent a new downside risk for social media stocks. You can trade the top companies in the sector as a single CFD with our unique Social Media Blend.