(Updated 4/26/2021 – Original post dated 12/5/2018)
After nearly 1.4 years worth of collected data, we have determined that the financial news media site CNBC (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 (wsj.com), while better performing and not nearly as negative, also exhibits somewhat contrarian reporting. One would suspect that the financial media news sites would strongly correlate 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 (1:30 PM PT). If the headline was positive, we assigned it with an absolute 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:
|Positive (+1)||Neutral (0)||Negative (-1)|
“Dow jumps nearly 300 points to a record high, gains 2% for the week”
“Stocks Little Changed With Tech Sector In Focus”
“CDC chief warns the U.S. headed for ‘impending doom’ as COVID cases rise again: ‘Right now I’m scared’”
To compare these headlines with market performance, we also assigned the S&P 500 daily return with an absolute score (+1, 0, -1) if the market was positive, neutral, or negative. Next, we created an index for each (S&P 500, CNBC, and WSJ) to track their performance. Note that there are periods of data gaps due to market holidays, company lapses, etc. In these circumstances, we only considered data points when all three sources were collected.
The results are astounding.
Since tracking the daily headlines (n=508), CNBC has only shown a 28% correlation to the S&P 500 while the Wall Street Journal a 57% correlation. Note the total absolute sum (the total sum of the absolute values since inception) of CNBC with a score of -109.
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 tough to beat when breaking news happens. 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 a few options to consider. I personally favor Reuters and the Wall Street Journal. In addition, I highly recommend checking out allsides.com when consuming your news from a political bias viewpoint. Note that AllSides rates all news categories, not only financial news.
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.