Is the news media making the market meltdown worse?

Faced with an overwhelming assault by news organization headlines warning of the market catastrophe that lay minutes ahead, there was a moment this morning that I almost cashed out all of my retirement portfolio that’s in equity markets and joined who knows how many others on the sideline.

This goes against everything I’ve learned firsthand in 40 year of working for a living, but in the absence of even a decent nugget of information telling me what I should do, I felt no choice but to give in to the gloom. Only laziness prevented me from acting, but I wonder how many millions of Americans, more energetic than I, are reacting to the steady drumbeat of news organizations in addition to whatever market savvy they have?

So it was interesting to hear a caller on Midmorning today who insisted the media isn’t, as alleged, “making things worse.”

“I absolutely think that’s true,” Ross Levine, a financial planner said in response. “If you look at what’s really going on as far as how companies are reporting their earnings, and if you look at the fact the dividend yield in the S&P is close to what 10-year Treasuries are paying, it’s almost obscene that the markets are continuing to sell off at this level, and I think market short-term is very emotional. Market short term look like the weather forecasts; you have no idea what they’re going to do in the short term. But long term, we have a pretty good sense of market valuation and that’s going to be based on earnings, and it’s going to be based on dividends, and it’s going to be based on getting the economy going again.”

“There’s been a theme throughout this thing of ‘shoot the messenger,’ said Heidi Moore, the New York bureau chief for American Public Media’s Marketplace program. “You see it with S&P and you see it with journalism. What we’re trying to do here is inform people for the most part about what’s going on. If those people are telling us that they’re expecting a crisis, that they’re expecting a panic, that they’re expecting the Apocalypse, then of course we’re going to reflect that. And when those people don’t say that, we reflect that as well. It’s important to note that it’s not the press creating this; the press and S&P did not spend us into a $14 trillion deficit. So we have to kind of focus here on the issues, and I think people put way too much emphasis on what words are used, and they read stories to see which political parties they support. It’s not really about that; it’s about are we keeping you informed enough so you can do your duty as a citizen? And that means you have to read the financial news and be able to filter that.”

“Words are important,” Levine countered. “If you take two situations and you look at the stock market and you say, ‘stocks are having a major sell-off,’ or ‘stocks are trading at the lowest valuations we’ve seen in three years,’ people will interpret that differently. I think that the words shape the context of the story. I’m not saying it’s the press’ fault because the press is reporting and I think they’re doing a good job… but I do think words matter and the interpretations of those words matter even more.”

Ms. Moore acknowledged the market is emotional and a reflection of the psychology in it. “I do think the words matter, but for daily market movements, that doesn’t tell us so much about what’s going on in the economy.”

And it doesn’t tell me what I’m supposed to do about any of this.

  • Bob – it all depends what you’re holding. But if it’s true most companies’ earnings and profits are up, then your stocks should go up in value. The market is low enough now that I suspect buying will begin again soon, as some stocks are just too cheap for savvy investors to not purchase. Buy low, sell high, as they say. But then – I’m not an actual financial advisor so results will vary.

  • Chris

    Most of my retirement funds are in mutual funds (Roth IRAs, etc), where I have some control, but not very much. I have tried to pick a diverse selection of funds, but it really is mainly a guessing game.

    I imagine most “investors” are like me. We put our money where we have been told to put our money, and we are trusting our fund-managers to make wise decisions.

    I’m 37 years old, so I’m young enough that I can ride this out, I guess.

    I find it disingenuous when financial experts tell me that as an informed citizen, I should be reading the financial news and filtering it accordingly. When the financial reality is the opposite of what the news tells me to expect, I filter it like this:

    You “experts” are guessing, too.

  • BenCh

    I hear it’s not all bad… gold is doing very well. Maybe the Gold Guys just need to start doing commercials that branch out into all aspects of the economy

  • mb

    News media, including MPR and NPR, continues to conflate what happens to that day’s Dow Jones Ave with the overall economy. Stories have been written/broadcast showing how ridiculous this is. Why hasn’t this changed? Why do generalists keep doing this?

  • Tim

    I’m sorry, this is my first market selloff while actually paying attention to the news, so this might be a stupid question:

    The way Mr. Levine explained the market in terms of weather didn’t make much sense to me. I thought the closer the forecasted date and the forecast itself were to each other, be better the forecast was. Am I wrong on this?

    This would be an overlook-able error if the market itself wasn’t already so complex.

  • Bob Collins

    I think he was suggesting a weather v. climate metaphor in which the weather is the short term and doesn’t necessarily indicate the climate.

    Weather=market, climate=economy.