July 2018: Red Flags for Stock Market News
Written June 18, 2018
Lately it appears that some commentary writers will grab just about anything to support a theory. Once published on a popular news site, such articles seem to gain instant credibility and strike the fear of God into the reader. But are they true? How can you know? I’m glad you asked. It does not seem to matter that the theory may be tenuous and, when given hard scrutiny, doesn’t stand up. This, dear reader is a major beef I have with stock market news outlets. I believe that if an author is going to make a point, he should use correlated data from a relevant time period to support his claims.
As a writer of market commentaries, my goal is to provide clear and accurate information for you. Here are three pieces of advice on when to walk away from a market commentary.
- The author or quoted analyst in the article has a poor track record when it comes to making the right calls. I don’t need to remind our readers of what happened to the boy who cried wolf. I’m aware of a few strategy analysts in our industry who make their living by continuously making inflammatory and negative calls about the market. If you find that reading a commentary leaves you feeling as if the sky is falling, you may have come across one such author. Notice that they often use just one data point to back up their claim, which brings me to my second piece of advice.
- Only one data point is referenced when backing up a claim. If you find an article that begins by saying something such as, “Rising interest rates are the warning bell that a recession is definitely coming soon,” STOP READING. Many variables should be used to back up this claim, not just one. Interest rates are rising, but are they climbing because the economy is improving? If other countries keep their interest rates low, that may cause higher demand for U.S. bonds. What if interest rates rise more slowly than the market has priced in? Each scenario could be positives for stocks and overthrow this original hypothesis that the market always falls when interest rates rise.
- Irrelevant data is used to make a point. On June 15th President Trump announced a 25% tariff on up to $50 billion in Chinese imports. China retaliated by raising import duties on $34 billion worth of American goods, including soybeans, electric cars, and whiskey. However, CNBC published a “related” article stating “…orders are being cut and investments delayed. American farmers are losing sales as trading partners hit back with duties of their own.”1 The article uses a reference to airfreight traffic, yet such traffic was flat before talk of tariffs. The article also mentions impacts on container ships, but there has been no growth in freight in seasonally adjusted terms since last fall. Since trade tariffs have only become a hot-button topic as of March this year, how are these references relevant to this discussion? How can we know that these slow-downs are direct links to trade war fears and not unrelated factors?
I’d like to note that I do believe a trade war would be a huge detriment to the global economy. This is a risk I am paying particularly close attention to. But again, if an article is going to make a point, it should use applicable, correlated data from a relevant time frame to support its claims.
There are more tips I could tell you about, but these should help you identify potential bias when digesting such commentaries. Be a critical reader. Start skeptical, check references, and research authors. If you find an article that you’re not sure about, send it our way and ask us what we think. We try not to be sensational; we simply see it as our mission as fiduciaries to give you the best advice we possibly can.**
Disclaimers and Notes
Registered Representatives offering securities and advisory services through Cetera Advisor Networks, LLC, member FINRA/SIPC Advisory services also offered through McDaniel Knutson Financial Partners. Cetera is under separate ownership from any other named entity.
The views are those of Victoria Bogner and should not be construed as investment advice. All information is believed to be from reliable sources, however, we make no representation as to its completeness or accuracy and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation. Economic and performance information is historical and not indicative of future results.
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