Content-Type: text/html
From Wall Street to Main Street: An Analysis of Stock
Market Recommendations on TV Business News Programs
by
Bruce L. Plopper
Professor of Journalism
School of Mass Communication
University of Arkansas at Little Rock
2801 S. University Ave.
Little Rock, AR 72204-1099
Phone: (501) 569-3250
e-mail: [log in to unmask]
and
Anne F. Conaway
Graduate Student
School of Mass Communication
University of Arkansas at Little Rock
ABSTRACT
Mass media business news coverage grew significantly in the last 20 years, American stock ownership proliferated in the 1990s, and stock analysts' recommendations in 2000 were overwhelmingly positive. Based on these facts, this study analyzed experts' stock recommendations as presented on four highly popular and easily accessible TV business news programs during the last quarter of 2000. Although results showed differences among programs, an overall positive bias existed when programs were viewed as a whole.
Mass Communication & Society Division
2001 AEJMC Annual Meeting
Washington, D.C.
From Wall Street to Main Street: An Analysis of Stock
Market Recommendations on TV Business News Programs
Recent statistics show that either directly or indirectly, nearly 50% of the U.S. population owns stock (Samuelson, 1999; Getlin, 2000), and that from 1992 to 1998, families having direct or indirect stock ownership increased from 36.7% to 48.8% (U.S. Census Bureau, 2000). Stock market commentator Thomas Frank (2000) explained these phenomena as partial outcomes of the investment industry's "...obvious financial interest in encouraging the general public to entrust it with our savings" (p. 93). Browning (2000) described such participation in the bull market of the 1980s and 1990s as a cultural event, commenting that "Buying and selling stocks has become a staple of life, alongside work, family and religion" (p. C1).
Additionally, several observers have noted that Americans are obsessed with business (Simons, 1999) and that despite the growth in business news outlets, the population still clamors for more business-related information (Saporito, 1999). Ironically, Clark, Mannix, and Ackerman (1999) reported that during the longest "bull" market in history, "...the wealthiest 1% of Americans received 86% of the stock market's total gains from 1983-1997" (p. 53). While these authors noted that only 28% of the population owns more than $10,000 worth of stock, thus partially explaining the lack of widespread wealth distribution from stock market earnings, it still is important to evaluate stock market information disseminated through the mass media to those Americans who do invest in the stock market at any level.
Specifically, one vehicle of dissemination that has grown in number and popularity since 1980 has been the TV business news program, with entire cable networks now dedicated to such programming, e.g., CNNfn and Bloomberg Television.1 Such networks, however, are generally not included in the basic cable-TV packages that serve most Americans. The typical TV viewer, therefore, must be satisfied to obtain stock market information from the daily and weekly TV business programs offered by From Wall Street to Main Street-2
networks that are included in basic cable-TV packages, such as those found on public broadcasting networks (PBS), the Cable News Network (CNN), and on the Fox News Network (FNN). This research analyzes a sample of those programs to determine what stock recommendations they offer to viewers.
LITERATURE REVIEW
Covering Business News
Nearly a quarter of a century ago, Sethi (1977) examined the relationship between business and the American news media, and he found that business leaders were very critical of the media's business coverage. In fact, Sethi grouped the criticisms into three categories: 1) the "economic illiteracy" of most journalists, 2) inadequate coverage, and 3) anti-business bias among newspeople (p. 240). Four years later, Dominick (1981) reported that 60% of network newscasts' business coverage concerned "bad news" about topics such as strikes, environmental threats, product recalls, and illegal financial dealings (p. 185).
Other writers have concentrated on the growth of business news in general. Rathbun (1997), for example, discussed the fact that radio coverage of business news has substantially increased, and Saporito (1999) detailed the explosion of business media in the last 20 years. Focusing primarily on the print media, he documented the growth of investment-oriented news, noting that in 1988 The Wall Street Journal added a section titled "Money and Investing," and that new business magazines such as SmartMoney and Worth (both launched in 1992) were flooding the market. Additionally, Saporito referred to the development of Bloomberg TV and Bloomberg radio, which were natural extensions of the computerized data service that Michael Bloomberg developed to compete with the Dow Jones Company. From Wall Street to Main Street-3
Also, Stepp (1999) described changes in business news coverage from 1964 to 1999, noting that in a sample of regional dailies, the percentage of the newshole
devoted to business has more than doubled in the last generation. Perhaps more importantly, Simons (1999) pointed out the inroads that Bloomberg News, the relative newcomer, had made in supplying financial news to financial desks around the country, including those at both newspapers and TV stations. He also noted that in September 1999, The Wall Street Journal began publishing a Sunday insert for major metropolitan dailies.
Believing the Analysts
Often, financial news outlets will quote or interview stock analysts, and a variety of research has examined the motivations behind analysts' recommendations and the effects that the dissemination of such recommendations have on stock market activity. The results were nearly uniform. Concerning analysts' motivations, it is clear that a firm's positive stock recommendations are frequently the result of a firm's desire to attract or maintain investment banking business (Womack, 1996; Dreman, 2000; Hill, 2000; Kurtz, 2000; Lauricella, 2000; Barber, Lehavy, McNichols, & Trueman, 2001; Morgan & Stocken, 2001). Grant (2001) described the relationship most bluntly when he wrote, "In all but name, analysts have become investment-banking salesmen" (p. 153).
Regarding the effects of analysts' recommendations, Beneish (1991) found significant relationships between stock price performance and publication of analysts' comments published in The Wall Street Journal's "Heard on the Street" column; Albert and Smaby (1996) found a significant relationship when "superior analysts" were quoted in The Wall Street Journal's "Dartboard" column; and Sant and Zaman (1996) studied the "Inside Wall Street" column in Business Week and found a From Wall Street to Main Street-4
temporary positive relationship between stock price performance and analysts' positive recommendations for stocks followed by fewer than 20 analysts. Additionally, when Chang and Suk (1998) examined the relationship between business news dissemination and stock price performance, they found that news of insider trades, published in The Wall Street Journal's "Insider Trading Spotlight," was significantly related to abnormal stock performance and increases in trading volume. Ultimately, Byron (2001) concluded, "Whether or not the recommendations have much (or even any) intrinsic merit is an interesting question, but for now it is enough to know that they do have the power to move stocks" (p. 86).
Other analyses of analysts' recommendations have revealed provocative conclusions. For example, reflecting on analysts' prowess as investigative researchers in 2000, Shilling (2001) noted, "Despite corporate guidance, analysts were still bagged often" (p. 152). To support his thesis, he identified seven major stock price declines that surprised analysts that year. Pearlstein (2001) reviewed an expanded time frame and found that financial experts "...have not predicted any of the nine recessions since the end of World War II" (p. A1), and Easterwood and Nutt (1999) found that analysts "...both underreact to negative information and overreact to positive information" (p. 1796).
Evaluating Other Types of Business News
In addition to quoting stock analysts, financial media outlets interview company presidents and chief operating officers (CEOs), and several authors have speculated that appearances by a company spokesperson can move the price of that company's stock. Kurson (1998) and Galarza (1998), in commenting on the effects of such appearances on the CNBC early morning program Squawk Box, referred to a From Wall Street to Main Street-5
"Squawk Box effect" or "bounce." They meant that a company's stock price will rise on the day the company's president or CEO appears on the program.
On the other hand, other commentators have warned against believing the "news" carried by various financial news outlets. Gardner and Gardner (1996) criticized the print media and the broadcast media for not holding financial pundits responsible, concluding that "For too long this [financial news] industry has relied on hocus-pocus and short attention spans" (p. 56). Diamond (1999) observed, "The booming stock market has created an explosion in the number of outlets for financial analysis and commentary. Not surprisingly, the quality of discussion has not thereby been elevated" (p. A22). Kurtz (2000) was highly critical of the conflicts of interests that he believes occur daily in the business media, commenting that "The media's willingness to play along with this insider game is nothing short of appalling" (p. 304).
While it is clear that in some ways, business news does move markets, at least in some immediate sense, it also is clear that there are additional concerns about the quality of such news. For example, Pethokoukis (1997) suggested that analysts' recommendations may be driven by various strategies, including garnering public attention and appealing to investors' hope regarding a booming market. Both result in investor activity, which, Pethokoukis noted, benefits brokerage firms. Indeed, recent analyses of analysts' stock ratings show a bias against advice to sell stock. Hill (2000), referring to data compiled by stock research company First Call/Thompson Financial, noted that less than 1% of 27,000 analysts' research reports dated July 31, 2000, contained a sell recommendation. Emery (2000), also referring to that data, told readers that only 29 (.3%) of 9,402 stock ratings published by the 10 biggest U.S. brokerage firms were "sells."
From Wall Street to Main Street-6
This trend is not new, although it has become more acute over the last 15-20 years. Womack (1996) studied data from 1989-1991 and found that new "buy" recommendations occurred seven times more often than did new "sell" recommenda-tions. He also noted that Zacks Investment Research put the ratio of new "buys" to new "sells" at 10:1 during this period (p. 143). Lauricella (2000) quoted a First Call spokesperson as saying that 15-20 years ago, "sell" recommendations made up 5-10% of the total. Vickers and Weiss (2000) reported in April 2000 that "buys" outnumbered "sells" 72:1, but that 10 years previous the ratio was 10:1. As recently as February 15, 2001, Susan Lisovicz noted on CNN's "Moneyline News Hour" that Zacks Investment Research data showed .8% of the stock recommendations it follows were "sells" or "strong sells," with 29% of the recommendations being "strong buys," 39% being "buys," and 31% being "holds"; on February 16, 2001, First Call/Thompson Financial confirmed that
only 1.2% of the nearly 28,000 recommendations it was following were "sells" or "strong sells" (personal communication with First Call's Ken Perkins).
Judging the Meaning and Worth of Recommendations
As corollaries to the distribution of analysts' recommendations, a few authors have pointed out that some recommendations have hidden meanings, and that generally by the time individual investors learn about the recommendations, it is too late. Berenson (2000) noted that institutional investors know that a "neutral" recommendation means "sell," and Dreman (2000) pointed out that analysts use such terms as "accumulate, neutral, maintain, hold, or even long-term buy" to warn against various stocks (p. 386). Economist Robert Frank (2000) said, "Economists disagree about many things, but one belief we share is that investors can almost never make financial headway by trading on the basis of numbers they hear about through the media. By the time such news reaches us, others will have long since From Wall Street to Main Street-7
acted upon it" (p. 29). Similarly, Byron (2001) explained,"...the highest quality reports have been almost completely unavailable to individuals-at least until after the investment firms that prepared them have shared them with their major institutional clients" (p. 19).
Whether or not business news and analyst recommendations are worthy appears to be debatable. Quinn (2001) said, "As an investor, you should start with one fact: No one - no one - knows what is going to happen to stocks" (p. 1D). Getlin (2000) quoted the editorial director for Business Week as saying, "People should admit when they buy or sell [stock] off of media chatter that it's gambling, not investing" (p. A14). And financial guru Peter Lynch (1989) wrote, "Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks just as well, if not better, than the average Wall Street expert"
(p. 13).
Some evidence to support the idea that investment experts may not be the best stock pickers is provided by the TV program Wall Street Week, which quantifies both the annual portfolio performance of its 22 rotating panelists and the weekly predictions of 10 financial experts concerning stock market behavior in the succeeding three months. For the year 2000, the portfolio analysis showed that 17 of the 22 portfolios were down (Wall Street Week, 2001a), and that the average portfolio was down 7.72%. Out of a possible 560 predictions about stock market behavior (there were 10 predictions per week for 52 weeks concerning the Dow Jones industrial average and, beginning December 8, there were 10 additional predictions per week concerning the Nasdaq composite average), only 126 (22.5%)3 were correct (Wall Street Week, 2001b).
From Wall Street to Main Street-8
Additionally, Jasen (2001) reported that for the third consecutive six-month period, a stock portfolio picked by Wall Street Journal staff members flinging darts at the stock tables outpaced a portfolio chosen by a team of investment professionals. He also reported, however, that "The pros are ahead of the darts by a score of 78-50 when results of the 128 contests since 1990 are tallied" (p. C8).
Examining TV Business News Programs
Given the proliferation of mass media business news, the overwhelmingly positive bias of analysts' stock recommendations, and the concerns others have raised about the quality of business news, this study examines the financial news provided to viewers through four of the most popular, easily accessible TV business news programs. Specifically, the study analyzes recommendations about specific stocks that investors may trade on a daily basis, about specific stock sectors that contain commonly traded stocks, and about broad markets in general.
The following five hypotheses were tested:
H1: Hosts will make fewer recommendations than experts.
H2: Overall, recommendations will reflect a positive bias.
H3: Recommendations about individual stocks will reflect a positive bias.
H4: Recommendations about individual stock sectors will reflect a positive bias.
H5: Recommendations about broad markets in general will reflect a positive bias.
The first hypothesis flows from the principle that the hosts, following established journalistic practice, generally will avoid inserting their opinions into the news they report or into the interviews they conduct with their expert guests. Hypotheses 2, 3, 4, and 5 are based on the principles that 1) most of the experts selected as guests on TV business news programs have a vested interest in the public continuing to purchase stocks; 2) by their very nature, one underlying goal of such programs is to From Wall Street to Main Street-9
help investors make money by buying stocks, which requires positive recommenda-tions about which stocks to buy; and 3) previous research shows that experts generally do not advise investors to sell stock.
METHOD
To analyze specific stock-related recommendations made on TV business news shows, a content analysis of four top-rated programs was conducted.2 A sample of these programs airing from October 1, 2000, to December 31, 2000, was selected for analysis. This time frame was chosen because it included an entire quarterly cycle in which 1) company earnings were reported (October); 2) company earnings were digested (November); and 3) company profit warnings were announced prior to the next reporting period (December). Within this time period, the sample consisted of every weekly showing of the PBS program Wall Street Week, every weekly showing of the Fox News Network's Bulls & Bears program, and every weekly showing of the Fox News Network's Cavuto on Business program. Additionally, during the same time period, a purposeful random sample of the daily (M-F) CNN program Moneyline News Hour was selected; this sample included 10 shows per month (30 shows total), with the 10 shows from each mo
nth consisting of two Mondays, two Tuesdays, two Wednesdays, two Thursdays, and two Fridays. Moneyline News Hour is an hour-long program, and the other programs run for 30 minutes each.
Prior to the designated time period for analysis, several shows were recorded and viewed to help define and strengthen the coding process. Based on the discovery that many analyst comments were particularly vague and difficult to score, the researchers elected to code each show together, allowing for immediate discussion between the coders when recommendations were hard to discern.
From Wall Street to Main Street-10
The coders began by rating each stock recommendation as being positive, negative, or neutral. A recommendation was coded as positive when analyst upgrades for earnings estimates or price targets were reported, or when sources commented that they thought a stock price, sector average, or broad market average would increase in value; indicated that they were buying a stock or recommending it to their clients; or indicated in some other way that they liked a particular stock, sector, or market. A recommendation was coded as negative when analyst downgrades for earnings estimates or price targets were reported, or when sources made comments opposite of those scored as positive. An unspecified group of analyst upgrades or downgrades for the same stock was coded as one positive or negative recommenda-tion. A recommendation was coded as neutral when sources either said they were neutral about a given stock, sector, or market, or when they indicated a stock price, sector index, or market
index generally was going to remain unchanged for some period of time. Descriptive phrases such as "remaining in a trading range" and "sawtoothing" indicated neutral views.
To qualify as a recommendation, the source had to indicate an opinion clearly and precisely; comments were not counted as recommendations when the source hedged or qualified the recommendation with words such as "could," "if" "maybe," "might," or "perhaps." The source of each recommendation, either a host or an expert, also was noted. Hosts were identified as those who worked for the network. Experts were identified as non-network personnel who provided advice or commentary on individual stocks or broad markets. They included people such as economists, market and investment strategists, financial editors or columnists, portfolio and fund managers, investment analysts and stock research directors, and spokespeople for brokerage From Wall Street to Main Street-11
firms. All recommendations were further coded for time frame as short term (zero to six months), long term (more than six months), or undetermined.
Each recommendation by a host or an expert also was coded as being related to either a named individual stock, a designated investment sector, or a broad market. Recommendations for mutual funds were included as recommendations for individual stocks because such funds are traded as individual entities. Coders used the 11 stock sectors identified by the Edward Jones glossary of financial terminology, available at Edward Jones Company brokerage firms. These sectors were as follows: basic materials, capital goods, consumer cyclicals, consumer staples, communication services, energy, financial services, health care, technology, transportation, and utilities. Recommendations were coded as broad market if they referred generally to the stock market or specifically to either the bond market, the Dow Jones industrial average, the Nasdaq composite index, the New York stock market, the American stock market, or to broader indexes such as the S & P 500 and the Russell 2000. Foreign markets
were excluded in this study.
Stempel (1989) has suggested, "The person doing a content study by himself should, near the end of the work, recode some of the earlier material and compare"
(p. 133). Thus after coding all the programs once, the two coders, once again coding together (as if coding was being done by one person), recoded the first 10% of the programs in the sample. Due to the difficulty in rating recommendation time frames and the fact that overall coder reliability increased from .81 to .87 when time frames were excluded, time frames were omitted from the final analysis. Differences between positive and negative recommendation totals, both overall and by program, were analyzed using two-tailed t-tests.
From Wall Street to Main Street-12
RESULTS
The original sample consisted of 69 shows, but all airings of one Bulls & Bears show and one Cavuto on Business show were preempted by coverage of court proceedings concerning the 2000 presidential election. Additionally, one Moneyline News Hour show was neither viewed nor recorded due to an extended, weather-related power outage, and five half-hour versions of Moneyline News Hour shows were substituted for five hour-long shows that were preempted by coverage of election-related court proceedings. Thus 12 Bulls & Bears shows, 12 Cavuto on Business shows, 13 Wall Street Week shows, and 29 Moneyline News Hour shows were recorded and coded. The coded content of these 66 shows represented approximately 30 hours of programming, which excluded commercials, network promotions, and station identification time. Occasionally, during November and December, these shows contained significant amounts of election-oriented material not relevant to this study.
Program Formats
Despite the infiltration of election-oriented content, the format of each program remained fairly consistent. The Bulls & Bears format was primarily round-table discussion that included entertaining visual images and playful bantering among two-to-five experts and one host. Virtually all segments of each show included stock, sector, or broad market recommendations. Cavuto on Business also used the round-table discussion format, but generally the discussion concerned market activity, economy-related issues, and world financial affairs; the host seldom elicited individual stock recommendations from the three experts and the one network financial editor who made up the panel.
Wall Street Week, on the other hand, opened with a brief monologue by the host, who discussed the past week's market activity and reviewed the predictive accuracy From Wall Street to Main Street-13
of the "elves." Each week, 10 technical analysts (elves) predicted three-month movements of stock market averages. For nine weeks during the sampling period, elves predicted movement of only the Dow Jones industrial average; during the last four weeks of the period, elves also predicted movement of the Nasdaq composite index. A bullish or "plus" vote predicted a market average increase of 5% or more during the succeeding three months. A bearish or "minus" vote predicted a decline of 5% or more, and a neutral vote predicted a movement of within 5%, either way.
Following the host's remarks, the program typically contained a tightly formatted question-and-answer session in which the host questioned three expert panelists; this was followed by another tightly formatted session in which the host and the three panelists questioned a fourth expert. All question-and-answer sessions contained little or no free-ranging interaction among experts. Occasionally, Wall Street Week presented special segments involving new products, specific market sectors, or answers to viewer questions.
The format of Moneyline News Hour differed significantly from the formats of the other three programs in the study. Instead of relying mainly on panels, this program consisted of segments in which the two hosts and other network personnel individually reviewed the day's market activity; one of the hosts or one other network employee individually interviewed financial experts or company leaders; and one of the hosts presented special segments such as "Tech Watch," "Sector Reports," or "Ahead of the Curve." Executive profiles, special reports on companies, and interviews with CNN's financial editor, Myron Kandel, also occurred occasionally.
Recommendation Distributions
An overview of the results shows that of 842 recommendations coded, hosts made only eight (.9%), thus supporting Hypothesis 1, that hosts would make fewer From Wall Street to Main Street-14
recommendations than experts. Six of the eight host recommendations were positive and two were negative. Of the 834 recommendations made by experts, 612 (73.4%) were positive, 181 (21.7%) were negative, and 41 (4.9%) were neutral. Because of the low number of recommendations made by hosts and the low number of neutral recommendations made by experts, these data did not warrant further analysis. As indicated in Table 1, the difference between the numbers of total positive and negative expert recommendations was statistically significant, thus supporting Hypothesis 2, that overall, recommendations will reflect a positive bias.
When expert recommendations were analyzed by individual categories of stocks, sectors, and broad market, the differences between the numbers of positive and negative recommendations remained significant. The data in Table 1 show that experts overall made 317 (73.4) positive stock recommendations and 115 (26.6%) negative stock recommendations, 74 (70.5%) positive sector recommendations and 31 (29.5%) negative sector recommendations, and 221 (86.3%) positive market recommenda-tions versus 35 (13.7%) negative market recommendations.
Table 1 also contains a program-by-program analysis of stock, sector, broad market, and overall total recommendations, and it is evident from these data that when experts' positive and negative recommendations are analyzed by category and by overall totals, there is noticeable program-by-program variation. For example, the numbers of positive and negative recommendations made on the Cavuto on Business program were not significantly different in any individual category or overall, while the differences generated by the Wall Street Week program were statistically significant in every category, including overall totals. Differences generated by the Moneyline News Hour program were statistically significant only when individual sectors were From Wall Street to Main Street-15
considered, and differences generated by Bulls & Bears program experts were statistically significant only when individual stocks and overall totals were considered.
Of the total recommendations, 31 were analysts' stock downgrades reported by hosts, rather than articulated by experts appearing on a specific program. Six
Table 1
Positive and Negative Expert Recommendations per Category, by Program
Program
aCavuto bMoneyline cBulls dWall eGrand
on Business News Hour & Bears Street Week Totals
Category (n=12) (n=29) (n=12) (n=13) (n=66)
Stocks
Positive 6 59 88 164 317
Negative 6 50 51 8 115
t NS NS 2.210* 4.305*** 3.474***
Sectors
Positive 1 24 22 27 74
Negative 0 10 11 10 31
t NS 2.294* NS 3.157** 3.428***
Broad Market
Positive 15 25 19 162 221
Negative 5 8 20 2 35
t NS NS NS 8.530*** 4.235***
Overall Totals
Positive 22 108 129 353 612
Negative 11 68 82 20 181
t NS NS 2.489* 6.473*** 4.436***
Notes: df: a=11, b=28, c=11, d=12, e=65
p values: * .05, ** .01, *** .001
recommendations concerned the bond market, and only three related to mutual funds. There were no mentions of stock upgrades on any of the shows that were coded. Addi- From Wall Street to Main Street-16
tionally, in the approximately 30 hours of programming that were coded, experts actually used the word "sell" four times and the word "avoid" twice, to indicate negative recommendations. Other indications of negative recommendations included the use of phrases such as "Dot-Gone," "Dot-Bomb," and "Yahoo equals Boo-Hoo," to refer to Internet companies, and the use of phrases such as "tech wreck," to refer to sector problems.
Commentary Trends
Sometimes, comments from experts could not be coded, even though there may have been a thread of positive or negative meaning within the comment. For example, early in the December 9 Bulls & Bears show, an expert said, "Microsoft is an interesting play." Later in the show, referring to the fact that he owned no Microsoft stock at the moment, he said, "At the close of business Monday, I might not be able to say that." On the December 19 Moneyline News Hour show, reporter John Metaxas, reporting from the Nasdaq market site, said, "Amazon hit a 52-week low, down almost 10% on the day after S.G. Cowan reiterated a 'buy' rating. But then the analyst said it would be prudent to avoid the stock; the fact that they (sic) [Amazon.com] are discounting and offering free shipping this season makes the results a little bit cloudy."
Other examples of confusing information observed in the programming included a Moneyline News Hour host on November 24 characterizing an analyst's neutral rating as really being a negative rating, and an expert telling host Louis Rukeyser on the December 22 Wall Street Week show, "We don't look at sectors; we look at individual stocks. The tech sector is looking good to us." It also should be noted that during some rapid-fire exchanges among panelists and hosts, it sometimes was From Wall Street to Main Street-17
difficult to determine how many stocks an expert was talking about when answering a question from the host.
On the other hand, most of the recommendations were stated clearly. In addition to the "sell" and "avoid" comments noted above, some experts were even vehement about their recommendations. One expert on the December 9 Bulls & Bears show, in referring to the energy sector, said, "Get rid of the whole sector." Such openly direct statements about sectors and individual stocks were common on this program, as was a high energy level. On the other three programs, experts generally seemed to follow unwritten rules of etiquette in giving their recommendations, calmly responding in measured tones to queries from the hosts.
Finally, during the sampling period, hosts and experts also made comments about analysts and their market-forecasting abilities. One guest on the December 23 Bulls & Bears show quoted well-known Merrill Lynch analyst Henry Blodgett as saying, "Analysts are always late." On the December 29 Wall Street Week show, the host reported that the year 2000 had been the worst overall year for the elves since they were created.
DISCUSSION AND CONCLUSIONS
Consistent with established journalistic standards, hosts observed in this study did, for the most part, refrain from injecting their opinions into discussions, interviews, and the news they reported. Thus analysis focused on expert recommendations. Despite the fact that during the sampling period the Dow Jones industrial average rose a mere 136 points (1.3%), the Nasdaq composite index fell a significant 1201 points (32.7%), and the S&P 500 index fell a moderate 116 points (8.1%), results in this study supported previous findings that investment analysts are generally From Wall Street to Main Street-18
positive in their recommendations. Additionally, the small number of "sells" mentioned in the sample supports earlier findings that analysts are wary of issuing "sell" recommendations. Nonetheless, when compared with the far more positive recommendations compiled by stock research companies such as Zacks Investment Research and First Call/Thompson Financial, three of the four programs presented a strikingly more balanced look at the markets.
Of the four programs analyzed, Wall Street Week offered the largest number of recommendations and was the most positive in its presentation of stock market advice. Presumably, this combination constituted the driving force behind the highly significant differences between total positive and negative recommendations involving stocks, sectors, and broad markets. This was true because panelists were positive and because the questions posed to some guests encouraged them to promote the sectors in which they were involved. Conversely, Cavuto on Business offered the smallest number of recommendations of any kind because this program primarily involved discussion of the market generally and the economy on the whole, with relatively little attention being paid to individual stocks.
On a percentage basis, Bulls & Bears and Moneyline News Hour had the least difference between the overall numbers of positive and negative recommendations. An explanation for this finding might lie in the format of these programs. As implied by its name, Bulls & Bears relies upon two contrasting outlooks on the market, one positive (bulls) and one negative (bears). To support the program's theme, these outlooks should be relatively well-balanced. The more traditional "newscast" format of Moneyline News Hour necessitates an objective approach to reporting and therefore must cover both the positive and negative viewpoints of market analysts. If viewers watch all four programs, they clearly will receive an overall positive view of From Wall Street to Main Street-19
the equities markets; however, if viewers are selective in their viewing, they can draw a variety of conclusions about stocks, depending on which program or programs they watch.
As stated earlier, one goal of TV business news programs is to help viewers make money. This is done through inviting guests, supposedly knowledgeable about investing in the stock market, to make recommendations about which stocks to buy. To encourage viewers to buy stocks, experts also must present a favorable outlook on the market, and they did this not only through direct comments, but by evading questions about selling or avoiding stocks. Instead of answering such questions, many guests would equivocate and then proceed to discuss what they would buy. Possible motivations for this evasiveness and for experts to make consistently positive recommendations about stocks, sectors, or the broad markets might include the profits generated by 1) attracting potential investors, 2) maintaining good investment banking relations, or 3) collecting transaction costs associated with high levels of stock turnover and portfolio rebalancing.
Overall, investors who obtain their business news from the mass medium of television must be wary of the information provided. The recommendations made by experts on TV business news programs are, for the most part, colored with a positive bias, and depending on which programs are viewed, the pictures painted for the future of stocks, sectors, and broad markets can be much rosier than reality dictates.
As a postscript to data available prior to this study, it should be noted that several sources have indicated significant drops in TV business news program ratings since the bull market began declining in mid-2000. For example, an article in the Wall Street Journal noted year-over-year (January 2000 to January 2001) ratings drops of 8-20% and attributed them to a slowing economy (Beatty, 2001). "When it comes to From Wall Street to Main Street-20
dwindling viewership," she wrote, "part of the explanation is that it's simply more fun to win than to lose" (p. B1). A similar explanation was offered by a commentator on National Public Radio's On the Media show. He said, "For years, the raison d'etre of cable financial news was to 'tune in and profit by what you'd learn.' The proposition 'stay tuned and cut your losses' doesn't have quite the same ring" (Capello, 2001).
As some viewers may rely upon TV business news programs not analyzed in this study or upon local and national newscasts, future research might extend to additional business programs and to traditional news programs. Attention also might be paid to the accuracy of observed predictions by checking them at arbitrarily determined points. Finally, further analysis of individual analysts' backgrounds and prediction track records might be informative.
NOTES
1For a timeline showing debut dates for TV business news programs and networks, see Henriques, D.B. (November/December 2000). Business Reporting: Behind the Curve. Columbia Journalism Review, 39, 18-21.
2According to the Wall Street Week producer, the program is watched by four-to-five million viewers and is available to 99.6 percent of TV households. According to network advertising rate cards obtained for this research (concerning viewership numbers) and the 2000 edition of Broadcasting & Cable Yearbook (concerning availablity to TV households), a) Moneyline is watched by 830,000 viewers in either the one-hour format or the half-hour format, on either CNN or CNNfn, and is available to just under 80 million TV households; b) Cavuto on Business is watched by 398,000 viewers during three showings and is available to 54 million TV households; and c) Bulls & Bears is watched by 370,000 viewers during three showings and is available to 54 million TV households. By way of comparison, as of January 2001, the estimated maximum number of average daytime viewers of CNBC and CNNfn, two TV networks devoted to financial news, was 303,000 (down from 339,000 in January 2000) and 50,000, respe
ctively. CNBC is available to approximately 72 million households and CNNfn is available to an estimated 13.3 million households. Bloomberg Television is available full time to 11 million subscribers and part time (generally early morning hours) to 77 million subscribers.
3This total includes eight correct predictions by an "elf" who was replaced in 2000.
From Wall Street to Main Street-21
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