When reading a typical stock-market story, one that says something like, “Futures Gain Ahead of Obama Jobs Plan,” did you ever think to yourself: “How do we really know the market move had anything to do with the president’s jobs plan? Says who?”
I’m a markets reporter. It’s what I do.
I’ve been covering the markets beat for theStreet.com since June, after having been entrenched in the narrow world of M&A news. I wanted a beat with broader appeal. And sure enough, less than three months after the switch, page-views on my stories were soaring. My new-found popularity wasn’t because I had suddenly became a brilliant writer. It was because a volatile turn in the markets simply begged for an explanation, sending thousands of extra readers my way.
At about the same time, though, the drudgery of writing the market-close story—stocks up on this; stocks down on that—began to make me wonder whether chasing the inevitable day-to-day ups and downs of markets was worth anyone’s time. Some critics say markets reporters must suffer from A.D.D., because short-term fluctuations in stock indices really don’t matter much in the long run. They say it’s absurd to pin a single narrative on spot news involving countless individual decisions, many of them made by robots. Too often, coverage favors one slant if stocks are up and another if stocks are down when, in fact, nobody really knows.
And yet, the bigger the swing in the Dow, the more urgent the need to chase down an explanation, even if it’s a short-term one. Indeed, larger swings actually predict greater reader interest, which, in turn, validates the coverage.
The public understands that something is a bit off-kilter, as we see frequently in reader comments on our daily market stories:
Investors aren’t the ones changing their minds. It’s the day traders and the HFT algos. that are changing our minds for us, we just side on the sidelines and watch the fake sentiment. Nothing has changed about Mr. Ben in the last 4 days; nothing has changed about Europe, either. However, to read Marketwatch and CNBC, you’d think one day we predict Ben is gonna do nothing, the next day we predict he will save the world. A whole lot of trader manipulation and media amplification.
Not long into this gig, I learned the dangers of putting too much weight into any one event or explanation.
Five days before Federal Reserve chief Ben Bernanke was set to speak in Jackson Hole, on Friday, August 26, news outlets were pegging a surge in stocks to hopes that Bernanke would hint at further quantitative easing. On the Tuesday and Wednesday before the speech, the Dow added roughly 450 points. By Thursday, stocks were dropping. The consensus became that whatever “optimism” on Bernanke that had led stocks higher was fading. All this happened without a single word from the Fed chairman.
In response to four stories that appeared on the Tuesday before Bernanke’s speech in Reuters, The Wall Street Journal, The New York Times, and PBS NewsHour, investment strategist Jeff Miller wrote a blog post headlined “Interpreting the Market: Good Luck!”
Among the headlines that he said were “all wrong” that day were “Wall Street Jumps on Fed optimism,” and “Stocks Jump on Hopes for Fed Action.”
“The idea that all of a sudden people got the idea that Bernanke was going to do something, to me, is just kind of crazy,” Miller said later when I reached him on the phone. “There is too much meaning inferred from what is normal volatility or variation.”
A better explanation for the Tuesday rally was that the huge stock sell-off in early August had set up markets for a relief bounce. After seeing a bit of upside, some investors got antsy enough to want to jump back into equities. And when stocks ran up so sharply at midweek, some decided to take profits, as the saying goes, and get out.
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.”