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The Danger of Following Daily Financial Headlines

A funny thing happened earlier today as I was searching for information.

Three particular headlines popped up on my Google search results. The first headline, published on 1 September 2015, talked about how the Straits Times Index (SGX: ^STI) was falling due to uncertainty over potential interest rate hikes by the US Fed. The second one, published on 2 September 2015, had a dourer tone as it talked about three days of consecutive declines for the Straits Times Index.

From the two headlines above, anyone could be forgiven if he or she thought that the fall in Singapore’s stock market benchmark had been due to concerns related to the US Fed’s action.

But then came the third headline which was published today, 3 September 2015.

In this headline, the newswire mused about how Asian stocks rose due to Wall Street’s (signifying US stocks) rebound while the China stock market was closed for the day.

Here are the headlines:

  • 1 September 2015, STI falls on uncertainty over US Fed move
  • 2 September 2015, STI declines third day in a row
  • 3 September 2015, Asian stocks rise amid China holiday calm; STI up 0.8%

Say what? 

The thing which amused me the most is how quickly the reasons for the stock market’s daily rise or fall can change. In my opinion, daily stock price movements are actually way more random than we can imagine.

My US colleague Morgan Housel once offered this picture of how random it can be:

“Pick a million random people from around the world every day. Some days, 51% would be in a good mood, 49% in a bad mood. The next day maybe it’s the opposite. Other days, random chance could mean 8% of people are pissed off for no explainable reason. This is basically what the market is on a day-to-day basis.”

In my opinion, Morgan’s scenario sounds more plausible compared to the maddening change of ‘reasons’ for the stock market’s daily movement that are offered by the media.

A Fool’s take

To be sure, the reasons put out in headlines can and do affect the long-term fundamentals of some companies in Singapore.

An increase in interest rates may affect companies with high debt loads. For companies operating in China, an economic slowdown may have a negative impact. These are possible risks to consider if we’re looking to invest in such companies.

But, to force-fit certain happenings as ‘reasons’ for daily stock market movements may be a step too far to take. As such, buying and selling your stocks based on financial headlines may not help you as much.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Google.