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Fake and Bad News Is Depressing Market, JPM’s Kolanovic Says

Bloomberg logoBloomberg 12/9/2018 Joanna Ossinger

FILE - In this Monday, Oct. 21, 2013, file photo, the JPMorgan Chase & Co. logo is displayed at their headquarters in New York. JPMorgan Chase & Co. reports earnings, Friday, Jan. 12, 2018. (AP Photo/Seth Wenig, File)© AP Photo/Seth Wenig, File FILE - In this Monday, Oct. 21, 2013, file photo, the JPMorgan Chase & Co. logo is displayed at their headquarters in New York. JPMorgan Chase & Co. reports earnings, Friday, Jan. 12, 2018. (AP Photo/Seth Wenig, File) (Bloomberg) -- Biased news outlets, political opportunists and publicity-hungry analysts are whipping the stock market into a frenzy that goes beyond anything justified by economic or earnings fundamentals, according to JPMorgan Chase & Co. strategists led by Marko Kolanovic.

Kolanovic, global head of macro quantitative and derivatives research, was among the JPM analysts who published a year-ahead outlook on Friday with an expected 2019 target of 3,100 on the S&P 500 Index, implying a gain of almost 18 percent from current levels. The latest sell-off has overpriced the risk of recession, said Kolanovic’s colleague John Normand, head of cross-asset fundamental strategy.

The benchmark stock index sank 4.6 percent in the latest week, to 2,633 points, its biggest decline since March, and is down 1.5 percent for the year to date. In the past three weeks, U.S. stocks have lurched between between gains and losses of at least 3 percent, volatility not seen such the global financial crisis a decade ago.

“To some extent, we trace the disconnect between negative sentiment and macroeconomic reality to the reinforcing feedback loop of real and fake negative news,” the strategists wrote.

And they see a lot of factors playing into that loop.

“Domestic political opposition may have an interest to paint a negative economic picture, individual market analysts gain more visibility and coverage with negative calls, and foreign adversaries amplify a negative news cycle in order to foster divisions and erode confidence in financial markets and the economy,” the strategists wrote.

Kolanovic monitors sentiment indicators, including how often topics are mentioned in news reports. And he’s concerned with certain news outlets that, while presenting at least a veneer of credibility, also contain darker offerings.

“There are specialized websites that mass produce a mix of real and fake news,” Kolanovic wrote. “Often these outlets will present somewhat credible but distorted coverage of sell-side financial research, mixed with geopolitical news, while tolerating hate speech in their website commentary section.”

“If we add to this an increased number of algorithms that trade based on posts and headlines, the impact on price action and investor psychology can be significant,” Kolanovic added.

Negative Reinforcement© Bloomberg Negative Reinforcement The report cited the arrest reported on Dec. 5 of Wanzhou Meng, Huawei Technologies Co.’s chief financial officer, which first caused turmoil in after-hours stock futures trading and then weighed on markets for the rest of the week, as an example of such negative news.

And there’s another factor exacerbating the picture, as well: President Donald Trump and his administration.

The White House has “given more than enough material (e.g. tweets, etc.) to be exploited by these actors in order to create an environment of investment uncertainty (e.g., on issues of global trade, oil, business decisions of individual companies, etc.),” the strategists wrote.

The president continues to tweet prolifically, but after posting Twitter messages about the stock market more than 35 times since his election, he’s gone mum about stocks as markets have gone south in the past month.

(Updates summary in first paragraph.)

To contact the reporter on this story: Joanna Ossinger in New York at jossinger@bloomberg.net

To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net, Ros Krasny, Matthew G. Miller

For more articles like this, please visit us at bloomberg.com

©2018 Bloomberg L.P.

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