After eight months of research, we have determined that the financial news media site CNBC (www.cnbc.com) has a strong negative media bias, despite the day-to-day market performance or the relative strength of the economy. The Wall Street Journal (www.wsj.com), while better performing, exhibits a somewhat negative biased reporting as well. One would suspect that the financial media news sites would have a strong correlation to the overall market as they report on the financial markets. However, we have long suspected that some financial sites, including CNBC, have a tendency to report negative issues rather than a neutral or positive story, despite market performance. As such, we began collecting data to see if this were the case, rather than making statements based on assumptions.
Since March 2018, we have been tracking the daily headlines of both CNBC and the Wall Street Journal 30 minutes after the market close (1:30PM PT). If the headline was positive, we assigned it with a score of +1. In contrast, a negative headline would earn a score of -1, and a neutral headline would earn a 0. Here are examples of each:
To compare these headlines with market performance, we also assigned the S&P 500 daily return with an absolute score (+1, 0, -1). Next, we created an index for each (S&P 500, CNBC, and WSJ) and tracked their performance. The results are astounding.
Since tracking the daily headlines (sample size = 149), CNBC has only shown a 23% correlation to the S&P 500 and a total absolute sum of -50!
CNBC: Beware What You Consume
Today, more than ever, it is important to know whether or not the media and news you consume is biased reporting. When it comes to wealth management, the type of financial news you consume is very important as is the sources you decide to get your news and information from. Any investment professional worth their salt will tell you having the right frame of mind is the single most important aspect to managing wealth.
Behavioral finance teaches us that humans are prone to many investing mistakes. Chief among these are abandoning your long-term financial plan when fear is high and the tempting riches of actively trading securities. CNBC, and I presume others, helps to exacerbate this inherent human flaw by frequently publishing negative headlines and, not only blowing them out of proportion, but encouraging their audience to trade often.
We chose the keywords out of each headline in order to visualize this bias. As you can see, WSJ uses more positive words such as “ease, strong, and rise” while CNBC uses words like “fall, drops, hikes, and plunges.”
CNBC Headline Wordcloud
WSJ Headline Wordcloud
Does this mean that we should avoid CNBC and seek out other media channels? Probably not. It simply means that you should be wary when consuming their media. CNBC is able to bring on fantastic guests and they are great at breaking news (truly breaking news, not somewhat interesting news that they label “Breaking News”). They are the single largest financial news media news outlet and avoiding them at all costs is likely not feasible.
If you are looking for a way to consume financial news with little-to-no bias, there are plenty of great options out there. For one, I recommend listening to Bloomberg’s Daybreak podcast. Bloomberg does a fantastic job of breaking down economic, financial, and political news without skew, a plus is that it’s easy to make time to listen to, whether you’re in the car or in the morning while you get ready for the day.
If you are looking for a financial professional to help you manage your wealth without commission or kick-backs, feel free to reach out to us at your convenience. We would be happy to learn more about your financial situation.
While the information presented herein is believed to be accurate, Bull Oak Capital LLC (Bull Oak) makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in the document. Bull Oak is under no obligation to notify you of any errors discovered later or of any subsequent changes in opinions. Nothing herein should be construed as a recommendation to buy or sell any of these securities. It should not be assumed that any of the securities, transactions, or holdings discussed will prove to be profitable in the future or that investment recommendations or decisions Bull Oak makes in the future will be profitable or will equal the investment performance of the securities discussed herein. Bull Oak or its employees may have an economic interest in securities mentioned herein.