Felix Salmon

Why market reporting should be ignored, part 912

By Felix Salmon
February 16, 2010

If you search the NYT for the phrase “Wall Street Follows European Markets Higher”, you’ll find this morning’s stock report at the top of the results list. Follow the link, and you’ll find the latest version of the report; the headline has changed to “Shares Rise as Worries Over Greece Ease”. But go back to that search-results page, and see how the story is described there:

Traders reacted to strong earnings from Barclays but remained wary about the Greek debt crisis and the response from the European Union.

This morning, then, US stocks were higher because of strong earnings from Barclays, but despite worries about the Greek debt crisis. A couple of hours later, they were higher — or so says the headline — because worries over Greece are easing.

Did US markets go from being worried about Greece to seeing their worries ease about Greece, all in the space of a couple of hours, and all without moving very far? I suppose it’s possible, but there’s no reason to believe in such things. Instead, pace Occam, the easiest and most obvious answer is normally the correct one. Market reports are meaningless; they can and should be ignored.

Are markets worried about Greece? Are they rallying as their worries about Greece ease? The answer is that anthropomorphizing markets in this way is supremely unhelpful. It’s just not often as obviously unhelpful as it was today.

3 comments so far | RSS Comments RSS

Excellent point. All that’s needed now is for Jonah Lehrer to tell us what we think we’re reading when we’re reading market reports.

Posted by RJKYorkville | Report as abusive

Thanks Felix,

This kind of reporting always bothers me. I’d add as unhelpful all the verbs used to lump huge markets into single-minded organisms such as ‘stocks were up as…’ and ‘the market plunged on fears that…’. Even NPR, one of my favorite news outlets, does their business reporting like this, advancing the thought that one or two sound bites can fully explain the general direction of the day’s market movements.

Posted by stevecrozz | Report as abusive

The gaming term “flavor text” is useful here. It refers to anything that is included in game materials but doesn’t actually have any bearing on play. For example on the Monopoly card, “You have won second prize in a beauty contest” is the flavor text, which dresses up the actual game action of collecting $10 from the bank.

As stevecrozz says, something in the reporters’ minds makes them want to reduce everything to one or two simple causes. It’s not actually the reporters’ fault, as we all do it. We’d rather think the changes have some simple cause, instead of the real story, so the reporters give us what we want, which is the flavor text chosen from elsewhere in the paper.

And let’s face it, there wouldn’t really be any story otherwise; or rather, it would always amount to the same story, something like “several million people and computer programs made a few billion transactions for their own reasons, the net effect of which was to change the share price of thirty-odd large companies in such a way that one weighted average of those numbers moved down by thirty points.”

Posted by KenInIL | Report as abusive

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