Traditional economic indicators are often poor predictors of a stock market trend. One of those indicators is the news. It can increase emotional reactions among investors but it will not accurately predict stock market trends. Here is a hypothetical example of financial news that you may be exposed to in a week:
News at noon: “Stocks up on manufacturing data…”
- News expounded that the manufacturing industry has grown for the first time in 18 months, giving the stock market a boost.
- This market sector had increased slightly in the morning hours of trading.
News at 3:00 PM: “Stocks fall after manufacturing, housing data…”
- Stocks retreated temporarily, giving up earlier gains.
- One sector can affect the broad market if that sector either temporarily gains or retreats in value.
- The initial news looked good, but what happened? Most investors can’t give you an answer, but many can tell you that the market does move up, down, or sideways, often all in a single day.
Be careful of the Street Booyah! Mutual fund or stock investors may be influenced erroneously by the current news. This can cause emotional swings which can alternate from joy if the media sounds good, or fear if the media is pessimistic. Financial news from many sources rotates from good to bad, or from bad to good over and over again. It can be unsettling for the unprofessional investor.
A rash response can cause an investor to sell a fund or a stock holding, due to fears caused by the many voices of “talking heads” spinning news-bits about investing, which we witness in the news media daily. The media gets news bites out quickly but misses the overall big picture, that markets will rise and fall, and can climb right back up in two or three day periods appearing as a roller coaster ride to the average investor. In the case of the 2019-2020 pandemic, the market lost value very quickly in March 2020, but by September 2020, markets had witnessed an amazing bull market bringing many funds and stocks back to their record highs. Of course, we don’t know what the future holds, though we have seen that long-term investing can and has paid off for many.
Professional investment management
Professional analysts are trained to look at trends in the markets and can allocate proper buying and selling of an investment fund’s securities. News stories are always one step behind the market, never ahead of it. Media is as fickle as the wind, securing information that is changeable over the span of often only a few minutes. Don’t build your wealth on the daily broadcast! Hire and utilize professional investment managers who know their business.