Why Newspapers Should Ignore Stock-Market Volatility

I get very irritated when newspapers splash one-day stock-market movements

all over their front page for no good reason. Every time the Dow drops 300 points

or more, it seems, there’s some kind of rule saying that big panicky headlines

have to extrapolate wildly. But maybe rises of 300 points or more are rare enough

that there isn’t a memo about those, because this morning’s headlines are sober

to nonexistent. Indeed, the NYT goes one further and puts on its front page

today a truly

excellent David Leonhardt column which, while certainly being about the

markets, has nothing whatsoever to do with yesterday’s 320-point run-up in the


In reality, of course, the timing is a coincidence: Leonhardt’s column appears

on Wednesdays, this was a good column deserving of the front page, and the unexpected

bounce in the stock market on Tuesday only affected things to the extent that

the first sentence needed to be tweaked a bit. But that’s all good: it shows

that the NYT’s editors are sober enough to realise that one-day upward moves

in stock market really don’t mean very much. With any luck, they will use their

demonstrated extrapolation skills to work out that the same is true of one-day

downward moves in the stock market, too.

Leonhardt’s point is basically that the "bad news" in the markets

is bad news mainly for that small minority of people with lots of money invested

in the markets. For most of us, it’s not really bad news at all. The weak dollar

and rising savings rate bode well for the long-term health of the US economy,

and a lower stock market just means that stocks are cheaper for those of us

a long way from retirement. Even the high oil price has a silver lining: it

acts much like a carbon tax (without the associated government revenues, of

course), helping to bring renewed focus on fuel effiency and other carbon-reduction


My only beef with the column, and it’s a minor one, is that Leonhardt seems

to be keen on the percentage-off-its-peak measure of how the stock market is

doing. Really, only day traders care much about how far off its recent peak

a stock market is. Stocks are still up significantly this year, and up even

more on a trailing-twelve-months basis. So I’m not convinced it’s really sensible

for Leonhardt to talk about "this year’s market drop".

Other than that, however, it’s great to see the markets-as-horse-race meme

given a well-deserved skewering on the front page of the NYT. Now, if only someone

could tell CNBC…

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