Saturday, July 26, 2008

The Stock Market is Not News

A sizable fraction of the news coverage in the United States is focused on the day to day fluctuations of stock prices. Most major newspapers have at least a full page of stock quotes, and many have 4 or 5 pages of coverage. The nightly news on TV gives a summary of the days action, with the change in the Dow being "a summary of the day in the financial markets". The radio updates "In moderate volume, the Dow is up 21, while the NASDAQ is down 6". However, this is in opposition to the fact that none of the aforementioned should be considered news on a day-to-day basis.

First, the day-to-day fluctuations generally aren't very large. What does it mean if the Dow is up 50 today? It means that the 30 stocks in the Dow cumulatively have a price around .4% higher. It's the equivalent of saying that gas prices have gone from $4.21 to $4.23 . And if tomorrow, the Dow is down 50, well, now absolutely nothing has happened from two days ago in prices. Hardly news.

Second, even when they do go up or down 5% in a day (which is significant), the price of stock in and of itself isn't really news either. Unless you're day trading, it's hard to see how it will affect you in any way. And if you are day trading, you certainly want more details than you could get in mass media news. Even here, the change in price isn't the news in and of itself; it's supportive evidence for other events. "Financial stocks were down 10% because of another failure in the mortgage industry" is inverted; the correct sense of the news is "Another major failure occurred in the mortgage industry. Investors are concerned that more failures may occur and pushed financial stocks down 10%."

Third, looking at the day to day fluctuations misses the big picture. "GM stock up 10% on improving financial situation" may sound good, but if you don't explain "GM stock is still down 58% on the year", you miss the entire point. "Intel stock was down 5% on the earnings report" would sound better if it was up 20% in the 3 weeks leading up to the announcement.

Finally, the stock market is generally treated as a numbers game. In this respect, it's no better or worse than sports coverage or the lottery, where undue attention is payed to minute details either only somewhat luck-related (were the two home runs last night luck or skill), or completely luck-related (7 hasn't come up for 3 weeks in the Daily Millions; it's due!). But most major newspapers will relegate the lotto and box scores to back pages of separate sections, while the fluctuations in stock prices are given far more prominence and respect.

My advice to struggling newspapers: Cut the stock quotes. Drop the separate "finance" section. Put business news in the same place you'd put any other news, don't emphasize day-to-day stock swings, and put "personal finance" stories in the lifestyles section. If you really feel you have to be in the stock quote business, tell people to go to your website to find quotes. After all, who do you think reads these quotes anymore on news print anyhow? You'll save space, cut costs, and have a more useful and news-filled product.

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