Has “Fake News” come to financial media?

Jon Lewis

Has “fake news” come to financial media?

Maybe… here’s what I found out.

I went to CNBC.com, which told me that we now know why the market plunged in December.

It wasn’t about the Federal Reserve, or computerized trading, or the government shutdown. Rather, according to this article, it was that “the market was mostly anticipating what has actually happened in recent days: Companies are cutting profit forecasts and trying to temper expectations for earnings growth this year after a big 2018.”

Cited as proof were Apple’s (NASDAQ: AAPLsales warning and the news that Constellation Brands (NYSE: STZwas cutting its profit forecast.

Ah, so it’s the old “the market is a forward pricing mechanism” argument.

Strange that nobody who is part of the market came up with that reason in December. Stranger still is the prevailing belief that the market is an all-knowing, sentient being that is “always right.” Sounds like something from “Star Trek.”

financial crisis concept with fake newspaper showing economic downturn

Follow the Bouncing Ball

So, let me see if I can follow the bouncing ball here. The market knew that companies were going to give some lousy numbers, so it simply priced in the bad news in December.

But what are we to make of the two-week rally that’s covered 10% or so for the major indices? Are things now all better? Are we going to see solid numbers from the upcoming earnings season?

And why did STZ get hammered recently on its lousy news, yet homebuilder Lennar (NYSE: LEN) is up around 8% on the day after a mostly downbeat earnings report? Maybe it’s because today the Fed said it “can afford to be patient” about future rate hikes. Maybe the market knew the Fed was going to say that too. Or maybe not.

For our purposes, of course, the question is how to process all these suppositions, ah-hah moments, earnings releases, tweets and breaking news alerts (Jeff Bezos is getting divorced!!!!) into something useful to trade.

The answer, as you might guess, is you don’t. Or at least I don’t.

Making Sense of Any of This “fake news”

My brain can’t make sense of any of this. When you think you have something figured out, you’re going to be disappointed. And trying to trade based on this information is even more ridiculous.

I’m a scientist by training (long, long ago). I was schooled in the scientific method. You know, where you observe something, come up with a hypothesis and then go about rigorous testing to prove or modify your thesis. And when you aren’t sure about something, it’s OK to say you don’t know. Saying the market is a forward-looking mechanism to explain a jarring move is tantamount to saying, “I don’t know.”

But, of course, those in the financial press and media don’t get paid to say that. They have to come up with some splashy headline, followed by a slew of “mights,” “coulds” and “maybes.”

“Fake news”?

I still consider myself a scientist at heart (and at brain, for that matter) and have no problem saying I don’t know were the stock market is heading. Because it’s the truth.

I guess that’s why you won’t be seeing me on CNBC anytime soon.

 


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About The Author

Meet Jon Lewis, With over 20 years of real experience, teaching AND trading, Jon will help you learn to use options profitably and safely in portfolios of any size.

His advantage, and now yours, is using simple, often overlooked spread options strategies which generate consistent income without significant risk.