The Media’s Effect on the Stock Market and Economy

Cnn, Msnbc, Fox News, and the other major United States news outlets have a combined audience, just in the US of over 85,000,000 viewers daily. This represents a huge populous that can be influenced into decisions on reports by these stations. In the last 6 months, it seems as though we have gone from the war in Iraq being the big news maker, to the economy, and how terrible it is being the headline grabber. So the questions are, does the US media have a direct impact on the stock market, and further more the economy as a whole? Does over reporting the negative hurt the populous even more, and will the media have a role in the recovery of this ragged economy?

Impact of the Media
Yes I do believe that the media has a semi-direct impact on the markets and the economy in general. Any media outlet will certainly look for a news story which will grab attention. Often the case is that an extreme negative or positive will attract viewers, and thus more ad revenue for the news outlets parent company. Because of this, the slightest bit of negative economic news will quickly be turned into a headline story, attracting those viewers who are driven by fear. When they see a story on CNN that almost half of Americans believe the Economy will fall into a situation similar to the Great Depression, fear from the viewers can lead to a self fulfilling prophecy. When a viewer sees a story like this, they will likely spend less money, pull their 401k stock investments, and hunker down for a bleak economic environment. This then leads to more negative news being reported and the whole cycle starting over.

What The Media Should be Doing
If instead of reporting useless polls that are likely unscientific, the media could be more responsible and only report the news in an unbiased fashion. This would likely lead to less volatile situations both when this news is positive and negative, meaning it will not have a direct impact on the economy itself.

Will the Media Play a Role in the Recovery?
Yes I think just as the media has likely created an over bleak idea about the economy and created mass panic selling, when the slightest bit of good news hits, we will likely see this go in the other direction. In fact we may have already seen this. What will happen is that a piece of good news will emerge from the rubble. The media will run with this news, creating stock markets to rise, and everyday people to spend a little more money. This in turn will create even better economic conditions that the media will jump on, and thus the cycle will reverse itself and continue in the favorable mindset. The conclusion is that the media plays a direct role in likely enlarging the economic swings that would be in place regardless.

Brian Krassenstein Helps Manage Investing Forum and consults advertisers at several sites including Money Maker Group

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