Although the news media-newspapers, magazines, broadcast media, and now the Internet-present themselves as detached observers of market events, they are themselves an integral part of these events. Significant market events generally occur only if there is similar thinking among large groups of people, and the news media are essential vehicles for the spread of common ideas. As we shall see, news stories rarely have a simple, predictable effect on the market. In some respects, they have less impact than is commonly believed. However, a careful analysis reveals that the news media do play an important role both in setting the stage for market moves and in instigating the moves themselves.

Setting the Stage

The news media are in constant competition to capture the public's attention. Survival requires finding and defining interesting news, focusing attention on news that has word-of-mouth potential (so as to broaden their audience), and, whenever possible, defining an ongoing story that encourages their audience to be steady consumers.

The competition is by no means haphazard. Those charged with disseminating the news cultivate a creative process-learning from each others' successes and failures-that aims to provide emotional color to news, to invest news stories with human-interest appeal, and to create familiar figures in the news. Over the years, experience in a competitive environment has made the media quite skilled at holding public attention.

The news media are naturally attracted to financial markets because, at the very least, the markets provide constant news in the form of daily price changes. Certainly other markets, such as real estate, are sources of news. But real estate does not typically generate daily price movements. Nothing beats the stock market for sheer frequency of interesting news items.

The stock market also has star quality. The public considers it the Big Casino, the market for major players, and believes that on any given day it serves as a barometer for the status of the nation-all impressions that the media can foster and benefit from. Financial news may have great humaninterest potential to the extent that it deals with the making or breaking of fortunes. And the financial media can present their perennial lead, the market's performance, as an ongoing story-one that brings in the most loyal repeat customers. The only other regular generator of news on a comparable scale is sporting events. It is no accident that financial news and sports news together account for roughly half of the editorial content of many newspapers today.

Cultivating Debate

In an attempt to attract audiences, the news media try to present debate about issues on the public mind. This may mean creating debate on topics that experts would not otherwise consider worthy of such discussion. The resulting media event may convey the impression that there are experts on all sides of the issue, thereby suggesting a lack of expert agreement on the very issues about which people are most confused.

I have over the years been asked by members of the media if I would be willing to make a statement in support of some extreme view. When I declined, the next request would inevitably be to recommend another expert who would go on record in support of the position.

Five days before the 1987 stock market crash, the MacNeil/Lehrer NewsHour featured Ravi Batra, author of The Great Depression of 1990: Why It's Got to Happen, How to Protect Yourself This book took as its basic premise a theory that history tends to repeat itself in exact detail, so the 1929 crash and subsequent depression had to repeat themselves. Despite Batra's significant scholarly reputation, this particular book would not be viewed with any seriousness by scholars of the market. But it had been on The New York Times best-seller list for 15 weeks by the time of the crash. On NewsHour, Batra confidently predicted a stock market crash in 1989 that would "spread to the whole world," after which, he declared, "there will be a depression." Batra's statements, made as they were on a nationally respected show, may have contributed in some small measure to an atmosphere of vulnerability that brought us the crash of 1987, even though they predicted a crash two years hence. Although Batra's appearance on NewsHour just before the crash might be considered a coincidence, one must keep in mind that predictions of stock market crashes are actually quite rare on national news shows, and so the proximity in time of his appearance to the actual crash at least suggests that it had some part in the process that brought us the crash.

Should the media be faulted for presenting debates on topics of little merit? One can argue that they ought to focus on a variety of topics of interest to general audiences, so that the public can refine its views. Yet in doing so, the media often seem to disseminate and reinforce ideas that are not supported by real evidence. If news directors followed only their highest intellectual interests in judging which views to present, the public might find its consciousness constructively broadened. But all too often the media are swayed by competitive pressures to skew their presentations toward ideas best left alone.

Desperately Seeking Analysis There is no shortage of media accounts that try to answer our questions about the market today, but there is a shortage within these accounts of relevant facts or thoughtful interpretations of these facts. Many news stories seem to have been written under a deadline to produce something, anything, to go along with the numbers from the market. A typical news story of this type, after noting the remarkable bull market, focuses on very short-run statistics. It generally states which groups of stocks have risen more than others in recent months, even though there is no theoretical or empirical reason to think that their performance has caused the bull market. The news story may talk about the "usual" factors behind economic growth, such as the Internet boom, in glowing terms and with at least a hint of patriotic congratulation of the US economic engine. The article then finishes with quotes from a few well-chosen "celebrity" sources, offering their outlook for the future. Sometimes the article is so completely devoid of genuine thought about the reasons for the bull market and the context for considering its outlook that it is hard to believe that the author was other than cynical in his or her approach.