When language matters

Marketwatch fondly remembers the more genteel days when a newspaper was read from cover to cover on the train to work.  It would then be carefully folded and placed in an expensive briefcase together with the other occupant, the sandwich lunch.

It is now altogether more frentic. Today is a case in point. Last night saw a significant fall in all stock market indices. The Wall Street Journal reported:

“U.S. stocks fell sharply Thursday in their worst showing since June, driven by a broad decline in many of the technology companies that have led the market higher in recent months.”

And the Australian Financial Review “Aussie tech stocks in crosshairs after Wall Street rout.”

The Times of London “American stocks suffered their biggest daily fall in almost three months last night amid signs that the rally in US technology companies is running out of steam.”

Congratulations go to the Straits Times which headlined with a more demure “Asia stocks drop after Wall Street’s tech rally stumbles”.

And so on.

Now Marketwatch has previously said that stock market valuations are bizarre given the state of the global economy.  Either there needs to be a big correction or some significant economic growth.

But let’s not get ahead of ourselves yet. This may be the beginning of a correction or it may just be a shiver.  Using sensational language to describe events has become the order of the day but can also convey the wrong impression.

The major Wall Street indices are dominated by major technology companies.  When their prices move they tend to have a disproportionate effect on the overall index.  The chart below shows the “big five” shares which are market drivers.  Clearly they all took a tumble and you bought their stock last week you might be forgiven for feeling a bit queasy.  But if, like any sensible investor, you have held the stock for longer you are still miles ahead.

 

Stock Prices

The feeling of doom transmitted in the “worst day for months” scenario can create a false impression.  We should not be driven by the headline and the first paragraph.  The breathless urgency requires a more balanced view.

So don’t be panicked by “more than $50 billion was wiped off the value of Australian shares” (Australian Financial Review).  Don’t make decisions based on the headlines, do a bit of reading and research.

Marketwatch will stay in touch.

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