Thursday, January 22, 2009

Beware the Media's “Obama Rally”

The market is down. It must be Obama.

The market is up. It must be Obama.

Tuesday, after the market sold off more than 300 points the Kansas City Star reported:

The dawn of the Obama presidency could not shake the stock market from its dejection over the rapidly deteriorating state of the banking industry.

While the Wall Street Journal went the opposite direction:

Problems with overseas banks contributed to weakness in U.S. stocks, said Alan Valdes, a floor trader with Hilliard Lyons. "It's an aberration -- I think we're going to get an Obama honeymoon rally," he said.

And after yesterday's big rally, Bloomberg hinted the honeymoon has official begun:

U.S. stocks rebounded from a two- month low, led by the biggest gain in financial shares in a month, on speculation a plan from President Barack Obama will shore up banks.

Please take this all with a grain of salt. Why? Maybe an example is needed... This past Friday, the day after the remarkable / amazing landing of the US Airway plane into the Hudson River, the Wall Street Journal declared:

US Airways Group Inc. shares rose 13% to $8.53 Friday in New York Stock Exchange trading Friday, outpacing gains in other carriers' stocks.

Accidents with fatalities can dent airline's reputations in the short term. But an outcome like the one with Flight 1549, which is being praised as an example of superior airmanship and crew training, appears to have prompted a rally.

If that is what prompted the rally (it didn't), it was short-lived. Since that Friday level (which just allowed the stock to bounce back to a pre-crash price), US Airways Group stock is... down 12%.

So... in a nutshell. Take everything you hear from financial TV, or newspapers (or even this blog) with a grain of salt. In the end, take in all the relevant information (most isn't) and proceed cautiously...


  1. Great post, it's one of my pet peeves. There seems to be this deeply ingrained need to assign something to every fluctuation, even when there is no news, or at least no compelling news.

    "Market down on bailout fears!"
    "Market up on bailout hope!"

  2. Jake,

    This is one of my pet peeves too, though I don't know if people in the financial news media are simply sensationalizing to attract an audience or they are incredibly ignorant or both. They certainly are not reporting the facts or doing so in an objective manner.

    That said, I disagree with your statement to “Take everything you hear from financial TV, or newspapers (or even this blog) with a grain of salt.” I take everything I hear from financial TV or newspapers with a rock of salt and take what I read on your blog with half a grain of salt. Thanks for your blog, which I read every day.