Does the Financial Media Affect the Stock Market?

A listener asks:

I was curious if you ever wrote topics focused around the media‘s influence on the capital markets.

Yes, I have written about the financial media in the past, and I think that now would is a good time to revisit this topic, given the comments that Bill Ackman made last week.

Back on March 18th, the stock market had fallen more than 30% in record time. That morning, with the Dow down 7% at the open, Ackman went on CNBC and said “Hell is coming.”

And later on in the segment, seemingly contradicting himself, he said:

That’s a very very bearish thought and I’ve been super bearish, but I got bullish, and the reason why I got bullish, and I’ve been aggressively buying stocks, including Hilton today, and I’ve been buying all the way down…

Which clip do you think was played over and over for the next 24 hours,”Hell is coming” or “I got bullish”?

I saw that interview in real time. I listened to him say he was buying stocks, but all I heard was we’re about to enter another depression.

Last week he was back on the air and said “I really blame CNBC. They took 15 seconds of my interview and ran around scaring people because it was good Television.”

I don’t blame CNBC for this and neither should Bill Ackman. Their job is to make good television. He’s been doing this for a long time, he knows how the game is played.

Back to the original question, does the financial media affect capital markets?

They’re a player on the field, no doubt, but I don’t know how much power they wield. Sure, stocks might move when certain pundits disclose a position, but, and I have zero evidence of this, I would guess those short-term pops don’t have long lasting affects.

The biggest influence the financial media has is at the micro level, not the macro. Here’s what I mean: It’s highly likely that certain viewers saw Bill Ackman on March 18th, heard the word depression, and sold all of their stocks. However, it’s highly unlikely that Ackman’s words moved the entire stock market.

If you’re interested in learning more about how CNBC came to be, I highly recommend The Fortune Tellers: Inside Wall Street’s Game of Money, Media and Manipulation, by Howard Kurtz. I’ll leave you with this quote:

When journalists cover politics, their outsider role is clearly defined. No single reporter can affect White House policies or a candidate’s campaign through mere analysis or commentary…In this realm, journalists are scorekeepers and second-guessers and naysayers, and their influence is ephemeral and diffuse. In the business arena, however, financial journalists are players. They make things happen instantaneously, and their impact is gauged not by subjective polls but by the starker standard of stock prices.