In the end, bouncing around is just what markets do, isn’t it? That’s why I don’t blame sources when they decline to talk about intraday movements. I’ve encountered a handful of long-term portfolio managers who scoff at the very idea of reporting on daily market movements. The strategists who do talk do the best they can. Sometimes, if no macro explanation presents itself, they resort to talking about individual stocks or sectors.
“There could be multiple opinions about what the market should be doing,” says David Lefkowitz, market strategist at UBS. “The one that becomes the most popular are the ones that are working, and people latch on to those opinions explaining what’s happening, even if they oversimplify the picture.”
As Lefkowitz says: “An explanation makes everyone feel a little more secure.”
The temptation to slap a narrative on everything isn’t only something journalists do; even big-time investors can make the same mistake. I’ve had portfolio managers on the phone adjust their explanations on the fly as stocks change directions. Suddenly the “good news” lifting stocks isn’t so good any more or the “bad news” just got worse. Or something. No doubt our interviewees are better connected to the money than we are. But still.
The coverage preceding Bernanke’s speech underscores how easy it is for journalists to zero in on a correlation and run with it as causation. But, because movements in the stock market result from trillions of calculations about future prospects for the economy and for individual companies, most of these unknowable, it’s impossible to come up with a solid proof of what the collective psychology is at any one moment. Do ‘bots even have psychology?
All this might lead you to conclude that the market moves randomly most of the time, and we shouldn’t even try to find out why. But wait. Throwing our hands up is just as extreme an overreaction as pinning a day’s move on a single event. For one thing, it’s a sure way to lose readers, who are grasping for an explanation. For another thing, there are ways to do it reasonably without falling into the over-simplification trap.
Let’s face it, the unwavering attention from readers suggests that the daily markets story will, and should, remain a staple of financial news. If that’s the case, we should make our explanations as reasonable as possible. How? Market reporters and editors should simply try to present the reader with realistic explanations—because day-to-do events do have an impact on short-term moves—including, when appropriate, acknowledgment of uncertainty behind the market’s gyrations.
In response to one of my pre-market stories headlined “Futures Gain on Obama Jobs Plan,” for example, a reader had commented:
Can you prove that Obama’s $300b plan which has no chance of passage is the reason for futures being up today. There have been many days where futures rebounded after 300+ points of losses. Pretty sloppy reporting.
In retrospect, I wish the headline had been that futures were gaining “ahead” of the President’s jobs speech. Then I would have been laying out a possible reason for the gains in futures but not definitively pinning down on one. It’s a word game, sure, but words matter, and a small tweak would have resulted in a more accurate headline.
Markets stories should give reasonable weight to what the near- and long-term trends for stocks are. Adding color about how certain asset classes fared differently and noting forward-looking news like upcoming earnings announcements or economic events can round out a story. Stocks and gold might move down in tandem one day, in which case we can’t cite the same news headlines to explain why investors are both risk adverse and safety shy at the same time. If a strong dollar or yen is behind the movement in gold, then the markets reporter had better capture that relationship.

"Throwing our hands up is just as extreme an overreaction as pinning a day’s move on a single event. For one thing, it’s a sure way to lose readers, who are grasping for an explanation."
In centuries past, when sickness plagued a village, citizens grasped for answers from priests and other holy men. Their unwavering counsel: "buy on the rumor and sell on the news."
Just kidding! Actually, they said it was witchcraft.
#1 Posted by Edward Ericson Jr., CJR on Mon 3 Oct 2011 at 04:28 PM
Reminds me of the caption in the New Yorker under a cartoon of a television stock market reporter: "On Wall Street today, news of lower interest rates sent the stock market up, but then the expectation that these rates would be inflationary sent the market down, until the realization that lower rates might stimulate the sluggish economy pushed the market up, before it ultimately went down on fears that an overheated economy would lead to a reimposition of higher interest rates."
#2 Posted by Mike Robbins, CJR on Mon 3 Oct 2011 at 05:45 PM
A new software program, HFT Alert, was released last week. HFT Alert monitors for HFT and Algorithmic trading systems and the stocks being targeted. It works in real time and has various detection algorithms built in that will identify 'flutterers' and 'cycle repeater' algo among others. It also shows the overall level of activity across exchanges.
Today's activity was extremely high, much higher than the last several big down days. This software is very useful especially for portfolio managers and traders monitoring groups of stocks.
There's info at the website at www.hftalert.com. Some videos as well.
#3 Posted by Steve Hammer, CJR on Mon 3 Oct 2011 at 08:01 PM
I've been a business editor for almost a decade and a half. The daily scramble to ascribe reasons for the market slipping half a percent or nudging up two-thirds a percent is often comical, not so often illuminating. I think Taleb largely has it right when he says we screw up these stories. There is usually no single, overarching reason -- or at least none that we are able to ferret out that fits in a nice, neat box. I tell people: If someone drops a nuclear warhead on Manhattan, the market will plunge and a stocks writer will be justified writing, "The S&P plunged 40 percent because a nuclear warhead exploded over Manhattan." But what's more typical is that the market sloshes around, and why that's happening isn't so easily explained. Still, I know the box this reporter is in. We who cover markets have no self-respecting way to write, "The S&P rose 15 points and I have no clue why." So the dance goes on ...
#4 Posted by Financial Editor, CJR on Wed 12 Oct 2011 at 06:39 AM
Disclosing that you write for theStreet.com is akin to explaining to your girlfriend that you have genital herpes the morning after boning her over 11 times in every room of your house the previous night.
I mean Cramer....OMFG....surely you feel the need to shower at least three times a day?
How on EARTH do you explain to family and friends that you have anything whatsoever to do with that creature?
#5 Posted by Herman D. HugeLoad IV, CJR on Wed 12 Oct 2011 at 05:14 PM