Could the volume – and tone – of TV, web, and media coverage of market fluctuations actually make matters worse?
Wall Street has been through crises before: The years 1907, 1929, 1970 and 1987 tested investors just as much as 2008. But this time, something is different: three cable business chains and Countless websites provide 24/7 financial market coverage.
The very thin amount of information available raises the question: could the media contribute to the big crisis they are covering?
In recent crises, average investors had to wait until the evening or the following day for the newspapers to find out how their investments were performing.
Panic is assured
This year, financial panic has been building minute by minute as investors watch. Meanwhile, online tools allow investors to make rash decisions, buying or selling stocks with the click of a mouse.
This is a media environment that brings together all the conditions leading to panic. Thus, Jim Cramer of CNBC terrified more than one by calling on October 6 investors to sell. “Whatever money you need for the next five years,” he said, “please get it out of the stock market immediately, this week. »
Downbeat headlines and bear market analysis in major financial publications have fueled pessimism among readers over the past two months. The media frenzy has reached a point where CNNMoney.com is advising its readers, for the sake of their health, to “turn CNBC off.”
Yet despite the abundance of headlines and panicked talk on the air, Richard Sparks of Schaeffer’s Investment Research doesn’t think the media is unnecessarily hyping up market fears. “The facts themselves are quite frightening. he says. “This is a historic crisis, and it does not require any media hype,” he adds.
Still, the media can contribute to “huge swings in investor optimism and pessimism. says Christopher Smith of Annenberg School for Communication. “When conditions look good, analysts are often overly optimistic on TV,” he says. “When things go wrong, they go out of their way to explain to people what awful things could happen. »
In addition to the fear, it is noted that, despite the fact that more and more people hold stocks in their personal accounts, many remain quite uninformed when it comes to investing and understanding how the financial markets work. Add to that a crisis that is so complex that it is difficult to describe it simply. “People are paralyzed. says Marty Steffens, chair of business and financial journalism at the Missouri School of Journalism. “Most of the people I talk to have no idea what to do. »
The financial media are accustomed to serving active investors who are generally quite knowledgeable. But the crisis has caught the attention of many people with very basic questions, such as whether bank accounts are safe, Steffens said. Furthermore, “there is also the great danger of giving someone the wrong advice,” she says. “What might be great advice for me might be bad for you. »
The acute pain of institutional investors
Despite these stressful conditions, there are anecdotal facts showing that the average retail investor is indeed less panicked these days than the professionals on Wall Street. “Many hedge funds, for example, are forced to liquidate their assets. notes Sparks.
An individual saving for retirement has the luxury of waiting for a big sell-off in the markets. Institutional investors, on the other hand, are judged on their short-term performance. “Their pain is greater than that of retail investors. says Sparks.
The media focused on the financial crisis must consider another important factor this year: politics. Much of the media coverage of the economy inevitably leads to a discussion of the race for the US Presidency. For the past two months, the economy has been the No. 1 topic for both candidates, Democrat Barack Obama and Republican John McCain.
Republicans are more optimistic
“A tough economy should be a blow to the incumbent party, and that’s what happened this fall. While the crisis helped Obama, it hurt McCain. says Lynn Vavreck, professor of political science at the University of California. She notes that political allegiance can indeed influence the perception of the economy. “Polls have shown Republicans are much more optimistic about the state of the economy than Democrats are,” Vavreck said.
David Domke, professor of communication at the University of Washington, believes that the presidential election could indeed help to limit the degree of panic of the general public. Fear is often driven by a feeling of helplessness, a feeling of not knowing what to do, he explains. “In some ways, the presidential election gives people a sense that there’s something they can do: they can vote for one of these candidates, whoever they think can do something [ about the crisis]. says Domke.
The same goes for the large number of financial hedges available to people during this crisis. The availability of information makes people feel a little less helpless. “Getting as much information as they want gives people a sense of control. », explains Domke.
Of course, a frenzied ingestion of financial news reporting market declines could ultimately limit even the most information-hungry investor’s hunger.
