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.
The markets story should convey that stock movements are complex. The Street’s lede on the Tuesday before Bernanke’s Jackson Hole appearance back in August cited multiple reasons behind the stock surge.
Stocks staged a mighty rally Tuesday, even shrugging off the uncertainty presented by a rare East Coast earthquake, as all three major U.S. equity indices gained at least 3%.
Early buying was attributed to positive global economic data, which overshadowed another weak read on the U.S. housing market, as well as growing investor optimism about a high-profile speech due from Fed Chairman Ben Bernanke at the end of the week. The gains accelerated ahead of the close after the S&P 500 broke past 1150, a key technical threshold.
We’re not doing heavy-duty investigative work in the markets report, but we’re still obliged to give our readers the best snapshot of reality that we can. The challenge is how to balance this obligation with the pressures of writing under deadline. When the market decides to surprise us just minutes before the closing bell, we still have to handover our copy within reasonable time. The question is, what’s it going to say.?
The easy way out is to pin credit or blame movements on one or two events of the day. But getting closer to the truth, as with most stories, requires giving readers more context and multiple angles, and through that, an implicit acknowledgment of a narrative’s complexity.