Writing Market Comments
One of the first lessons of journalism school is that a news lead should answer the five “W’s”: Who? What? When? Where? and Why? For market reports, the “Why” question is particularly important.
A common pitfall when writing market comments is to simply regurgitate the numbers and results of a session. Because traders and consumers with Internet access can obtain real-time market prices on hundreds of Web sites, a report of a given market rising or falling so many points is of little value. A good market comment lead should answer the “why?” question, explaining the key factors driving the market’s performance and anticipating where it will go. This can be difficult as people within the market often don’t know. But reporters need to try to explain a market’s behavior and provide context, background and some insights into longer term trends.
Market comments should include:
- Informative lead. Tell the reader how the market performed in a session and examine the key factors driving the market’s performance. (See example at end of this article.)
Results. Report the results of the session in the first two paragraphs. This should include the market’s benchmark or key indicator. For example, if writing about the U.S. stock market, the writer would focus first on the performance of the Dow Jones Industrial Average. For the Japanese currency market, it would be the yen’s performance against the U.S. dollar and so on. Every market will have its corresponding benchmark that provides neat shorthand for assessing the overall market’s performance. Lower down in the story, touch upon secondary market indicators.
Note on reporting numbers: Numbers are essential to any commentary, but can clutter up a lead and make it dull. In unremarkable sessions, results can certainly be relegated to the second paragraph, leaving more room for poetry in a lead that will keep the reader interested.
Note on quoting results: Give the numbers in absolute points and also in percentages whenever possible. Percentages often give a better perspective on how big a move is, especially in the case of individual stock moves. (See example at end of this article.)
Quotes. In the third paragraph use your best quote of the day that explains the market’s movements eloquently. This should preferably quote a named source. Using unnamed sources to state mundane facts about a market, especially when the story contains quotes from a named source saying more or less the same thing, only weakens the story.
Note on naming sources: Typically traders and brokers don’t like to be identified in news stories. Even if the quote is benign, sources may be wary. Convincing sources to go on the record is often a question of winning their trust and ensuring they will be quoted accurately and their words won’t be taken out of context. Sometimes a source will consent to an interview only if the reporter promises the conversation will be “on background” or off the record. After the interview is over, however, the source more often than not will agree to be quoted on several specific points he/she made. In general, keep in mind that cultivating trust is a big part of a reporter’s job, and if a reporter has a good relationship with a source there is a greater likelihood that the source will call the reporter he trusts with a scoop. Except in the case of a major scoop from a source the writer knows to be absolutely reliable but cannot name, always strive to get sources on the record.
- Nut graph. Follow the lead quote with a nut (para)graph. The nut graph establishes perspective and context and explores the bigger picture of what is going on in a market. This paragraph might discuss a longer term trend in the market for example: “This was the 10th straight session of losses since a dismal report on the economy came out early last week” or “Traders say the market won’t rebound until there is evidence of a recovery in corporate profits and the threat of war has passed.”
Elements of a Market Commentary
Once these basic aspects have been covered, the writer can focus on a number of other elements that round out a good market commentary.
- Perspective. Perspective helps the reader understand the market’s longer term trends. As a rule, the bigger the move in the market, the more crucial perspective becomes. On a day when the market has seen one of its 10 biggest moves ever, the commentary should mention this very high up, probably in the first paragraph, followed by the perspective of a few days, weeks or months. For example, was it the market’s first rise in 10 days? Was it the biggest gain of the month? This kind of context can enhance a commentary. At the end of the week, the writer will want to sum up the market’s performance for the entire week, after giving the day’s results. The same goes for the end of the month, the end of the quarter, year, etc.
- Factors affecting the market. As a rule, the more factors a reporter can attribute to market movement, the better. Mention all the major factors high up in the commentary and elaborate, in order of importance, in the paragraphs that follow the nut graph. This is the meat of any market commentary. Start with the immediate and obvious stories of the day: economic news and data, interest rates, earnings news, profit warnings, etc. Then cast the net wider. What is happening in other related domestic markets? What is happening in international markets? Look at the geo-political context. How might a war or a terrorist attack in a distant country affect local markets? Is there a shift in the deficit outlook for the country you are covering, or some instability in the currency markets? Are any important economic or political opinion makers giving speeches or commenting on issues that might affect markets? Is there an upcoming election or shift in government power that could impact the market?
- Technical analysis. Technical analysis is a tool used by some market analysts to predict future behavior of the market based on past performance. These analysts look for patterns in the charts of the market, taking into account prices, volume and other factors. Some analysts are skeptical of the value of technical analysis. Nevertheless, a market reporter will almost surely hear talk of technical factors and might eventually want to incorporate such comments into their writing. Technical comments can be valuable and can also demonstrate the writer’s command of the market they are covering. Was an important technical level breached during the session? Was this level important for psychological reasons or were certain trading strategies such as stop-loss selling triggered when the level was breached? Most importantly, what do the technical trends point to for the future of the market? The writer will want to have a list of a number of reliable technical analysts who can provide such insights on a regular basis.
- Quotes from multiple sources. In market commentaries at least two sources should confirm the key reasons for the market movement put forth in the lead paragraphs. Also, a variety of sources will give differing perspectives on the market and hopefully offer a well-rounded picture of what is going on. It goes practically without saying that good sources are the heart and soul of any market commentary. The writer will need to develop a cadre of reliable, knowledgeable and quotable sources who follow the market they are covering intimately. Don’t rely on sources who give snappy sound bites just because they are highly quotable. Go with sources who offer intelligent, coherent insights into market movements and who have proved reliable in the past.
Factors that Move Markets
It would be impossible to name all the factors that affect markets. But here are some that consistently crop up in most countries and markets. Touch on as many of these factors as possible in all market reports.
- Expectations. Expectations are perhaps the single biggest factor affecting markets. Every day, market players make bets and gamble on any number of factors, whether it is a particular company’s quarterly earnings reports or the government’s monthly inflation data. The bigger the discrepancy between reality and expectation, the higher the potential for a big market impact. So it is crucial to know what the market is expecting as far as the day’s big events.
- Valuation. Market reporters will often hear talk about whether the market, or a particular unit (an individual stock, bond or currency), is overvalued or undervalued. These perceptions are constantly in flux but they do affect the market. After a big run-up in prices for example, traders may sell off on the notion that the market “has become overvalued” or went too far. Markets are often like pendulums that swing from one extreme to another, eventually to balance out at a comfortable middle ground. In the U.S. stock market, for example, there is often talk about the price-to-earnings ratios of stocks or the market as a whole. There might be a historical average that is used to measure whether the market is currently undervalued or overvalued. This information can be an interesting component to a market report and can often move the market.
- News. News stories, especially those in influential magazines and newspapers buffet the market as well. Before sitting down to compose the first market report of the day, it is crucial to be aware of any news stories that are moving the markets. Again, talking to good sources early in the session will flag these talking point stories.
- Research. Banks, brokerages and institutions turn out research and forecasts almost daily that can move markets and serve as a rich source of information. Are there new profit forecasts out for a company or for a major market index? Are there new economic predictions or polls that have been published? Contact the various organizations putting out research relevant to the market being covered and ask to receive the research on a timely basis by e-mail or fax.
Economic data. The performance of the economy within which a given market operates is crucial context for any market commentary. The writer must follow the new economic data and stay on top of trends. Give the figures for new data within the market report and explain how it affected the market. Most importantly, did the data meet, exceed or fall below what the market was expecting? How does the data change the outlook for both the economy and the market? For example, stronger growth could point to an increase in corporate profits and a stock market might rally on the news while a fall in consumer spending is generally considered bad for businesses and probably a negative for the stock market. A report showing low inflation might trigger a rally in a bond market and a report showing a growing deficit could be bad for a country’s domestic currency. Always keep in mind that market players are using these new pieces of information to predict the future trends in the market and are positioning themselves according to these shifting views. Markets are always forward looking.
Note on reporting data: Always compare “apples to apples”. Giving a number without a basis for comparison is virtually meaningless. If IBM’s net after-tax profits rose one dollar in the most recent quarter, it is essential to say how much net after-tax profits rose in the same period a year earlier. With economic data, it is more common to compare to the previous month. For example, inflation minus food and energy costs rose half a percent in the most recent month compared to no change in the prior month. But make sure to compare it to the prior month ex-food and energy number as well.
- Interest rates. The interest rate outlook is crucial to all markets since the cost of borrowing affects both businesses and consumers. Traders and brokers closely follow the trends in interest rates including statements, data and research emerging from the central bank that could indicate future movement of interest rates. Stay on top of news affecting interest rates and incorporate it into the market commentary.
- Earnings and profits. Company earnings and profits play a major role in the ups and downs of equity or stock markets. There is a steady stream of earnings news and forecasts in equity markets so it is important to track the performance and expectations for major companies and sectors. The writer should include important earnings news in the market and explain the impact it has on market sentiment and the overall outlook. For example, if a major computer company comes out with weaker-than-expected earnings, it may depress the outlook for the entire computer sector and could in turn affect an entire stock index. Always look for these types of links.
- Credit issues. Credit quality and ratings are more important for debt markets. The writer must be aware of any changes in credit ratings of major companies or for countries that affect the overall market or an important sector of the market.
- Geopolitical news. Reaching beyond the financial world to understand the broader context for a market’s performance can add sophistication to a market commentary. The geo-political context is a key aspect of any market’s performance. For example, if an election is coming up, are markets concerned about the frontrunner’s economic and fiscal policies and the effect those policies will have on taxes, deficits or big business? Keep in mind that wars, terrorist attacks, coups, assassinations, environmental legislation – all of these issues and many more are of concern to markets. Exploring the geo-political context will open up a whole spectrum of topics for discussion in a market report that make for interesting and thought-provoking reading.
- Rumors. Rumors are a fact of life for any writer covering markets. Treat them with care. The number one rule is don’t spread the rumor by telling other sources about it. If there is a rumor moving the market and the writer has heard it from one or two reliable sources, it can be included in the commentary. Don’t report rumors that are not market moving. Also, try as quickly as possible to confirm or deny the rumor by asking an official source to comment on it.
The Power of Language
People who work in finance use a lot of jargon, and reporters need to avoid using it as well. Try to explain market activity in plain, everyday language that an ordinary person can understand. Avoid phrases such as “short-covering” or “profit-taking”. Instead explain the mechanics of how different trades work and, more importantly, the reasons behind the trades. This is much more challenging than using the insider jargon.
If you use an expression such as “short-selling,” make sure you define it as Dow Jones editor Gene Coulter did in a piece that ran on Dow Jones news wires: “Investors who sell securities "short" do so by borrowing shares and selling them, hoping the stocks' price will fall and that they'll be able to replace the borrowed shares at the lower price and pocket the difference as profit.”
Another major pitfall of writing market commentaries is using overly dramatic language. Good writing relies on active verbs and colorful language. But in market reporting, always use measured language. If the writer is working in a group of writers and editors covering a particular market, they might even want to agree on what percentage change might constitute a “slight” or “modest” rise or fall in the market compared to a “heavy” loss or a “rally”. Emotional terms like “plunge” or “skyrocket” should be reserved for only the biggest market moves. The writer does not want to have diluted these terms only to find when the big day comes; they are all out of exciting adjectives to describe a truly monumental market move, such as what went on during 2008 and beyond as the financial crisis spread beyond the credit markets into all other markets and the global economy.
EXAMPLE OF A GOOD MARKET COMMENTARY
Wall Street struggles, ends mixed on geopolitical, economic woes
NEW YORK (AFP) - US stocks ended mixed as concerns over terrorism were heightened by the discovery of a bomb on a French rail line and investors debated an uncertain economic outlook.
The Dow Jones Industrial Average was down 15.41 points (0.15 percent) to 10,048.23 for a fifth consecutive loss for the blue-chip index.
The tech-heavy NASDAQ composite meanwhile managed to gain 7.68 points (0.40 percent) to 1909.48.
The main broad-market indicator, the Standard and Poor's 500 index, dipped 2.62 points (0.24 percent) to 1,091.33.
"Day-to-day, we're seeing choppy trade as the market lacks catalysts, and the only catalyst that is going to help the markets is the upcoming earnings season," said Barry Hyman, equity market strategist at Ehrenkrantz King Nussbaum.
Hyman said stocks were also suffering from the flight to safety into bonds and gold amid the uncertain geopolitical situation.
One scare for the markers was the discovery of a half-buried bomb on a train line between Paris and Switzerland.
Another worry was rising oil prices, with crude near 13-year highs and gasoline prices at the pump at record levels.
"Every penny increase in gas prices drains one billion dollars out of consumer cash flow," said Merrill Lynch economist David Rosenberg.
"Clearly, without an improvement in income growth (i.e. a turnaround in the job market), this can certainly be expected to slow down consumer spending."
Markets mulled better-than-expected economic news as durable goods soared 2.5 percent in February, beating economists' expectations of a 1.7 percent rise, but January's numbers were revised downward to 2.7 percent.
Ralph Acampora at Prudential Securities said that investor sentiment is too battered to sustain a rally.
"Upside conviction is still lacking," he said. "We suspect that the equity averages will be hard pressed to maintain upside momentum near-term."
European stock markets retreated from early gains as worries about global security overshadowed some well-received company news and broker upgrades.
News of the bomb found on a French rail line linking Paris to the Swiss city of Basel further undermined sentiment in late trading.
The British FTSE 100 index fell 0.21 percent to close at 4,309.4, the German DAX 30 index slipped 0.07 percent to 3,726.07 and the French CAC 40 dropped 0.61 percent to 3,518.45.
The DJ Euro Stoxx 50 index of leading eurozone shares declined 0.43 percent to 2,702.05.
On Wall Street, the EU decision to impose a record fine of 497 million euros (613 million dollars) on Microsoft put the spotlight on the tech sector.
But Microsoft, which had slid over the past few sessions in anticipation of the decision, rebounded with a gain of 26 cents to 24.41.
RealNetworks, whose media software is a key element to the case, edged up one cent to 5.61 while Sun Microsystems, a Microsoft rival in the server area, dipped three cents to 3.98.
Oracle, the business software giant, added 13 cents to 11.53.
Walt Disney shares fell 33 cents to 24.77 after news that dissident shareholder leaders Roy Disney and Stanley Gold asked for a count of employee shareholders who joined the no-confidence vote on chief executive Michael Eisner.
Bonds were mixed, with the yield on the 10-year US Treasury bond edging up to 3.714 percent from 3.711 percent Tuesday and that on the 30-year bond dipping to 4.664 percent against 4.667 percent. Bond yields and prices move in opposite directions.
Why is this market commentary good? First of all, it goes beyond the usual economic factors in the lead and shows that geopolitical events, even in far flung countries, can affect a domestic stock market. It also brings in activity in other markets which back up the main point in the lead i.e. that there is a flight to safety into gold and bonds, so-called safe havens, a normal market reaction in times of geo-political uncertainty. The report also brings in activity in other markets that is affecting stocks, i.e. a rise in oil prices.