Blaming Social Media for the Market Crash: Finger Should Point Elsewhere

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It’s no secret that the stock market is falling faster than someone with cement shoes. The blame game focused on Standard & Poor’s (S&P) downgrading the United States’ credit rating from AAA to AA+. The markets reacted violently, dropping 635 points on August 8. It was enough to get many queasy about their financial futures.

The next day, the markets rebounded. But that didn’t stop the finger pointing from journalists and “experts.” A story in The Atlantic Wire’s technology section by Rebecca Greenfield placed blame on social media, saying it “could be making the market crash worse.”

I usually read these stories because it’s remarkable that they get published, in print or online. This quote is from the initial paragraph of the post:

“The media thinks it’s performing some sort of public service–informing the people–but it turns out that all the negative coverage, especially as its delivered (in) the Twittersphere, just makes things worse.”

With all due respect to Ms. Greenfield, the media IS performing a service by keeping people informed. Negative coverage is everywhere and it’s not just on Twitter. Sure, social media networks have allowed us to get news and information much more quickly. But does that mean our tweets about the market dropping over 600 points is the reason it will get worse (or better)?

On any given day, you’ll see someone you follow tweet something negative about an airline, their favorite team or product, or even an individual. However, you could find a plenty of figures to make a cause and effect relationship between something starting good and ending badly.

A study in 2008 by Indiana University found the mood on Twitter correlated with the value of the Dow Jones, with near 90-percent accuracy several days in advance. By looking at 9.8 million tweets during 10 months, the school apparently proved the correlation. But as with any study, there are important caveats. Especially since expectations aren’t the only thing that determine economic outcomes.

The market’s crash this week was the correlation of many things, including the S&P downgrading and our country’s debt discussions. A few million people tweeting what was going on didn’t cause the fall, nor will it effect the move back into large gains.

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  • http://twitter.com/John_Trader1 John Trader

    Well said Jason.  It’s absurd to blame the social media sphere for causing additional damage to an economic machine that was clearly already broken.  The fundamentals of the economy are not affected by consumer sentiment, which is arguably an important factor in economic gauges, as much as they are the monetary and fiscal policies that are in place to drive the economy.  If anything, my opinion is that the social media sphere opened more eyes to the egregious mistakes and blind eye that Congress has had on our country’s economic future so that more people are more in touch with reality, more interested in vocally expressing their opinions, and more likely to participate in the only true right that we have as citizens in this country — the right to vote.  It will be interesting to see the increase in percentages of people who vote in next year’s Presidential elections because of the rise in social media as a communications channel. 

    • http://twitter.com/JasMollica Jason Mollica

      It’s kinda like the “old days,” where the blame the media mantra was prevalent. It still is to some degree. But now we are seeing the finger pointed towards social media now, too. 
      Perfect point, John about opening more eyes. Politicians, financial heads now have people watching them more closely and giving their opinions. That creates action from the public.

      Thanks as always!

  • JM

    I beg to disagree. Not just social media, but all media at this point continuously playing the “frightened” card to viewers and readers is causing people to panic even more and pull their money, in turn causing more declines. Where’s the calming interview with the intelligent advisor who’s made an entire career investing money for clients yielding high returns? His or her advise is to calmly wait.

    Any financial advisor will tell you that the market is a roller coaster and will go up as fast as it goes down. Leave your money where it is and it will in turn around in time. I haven’t heard a single journalist emphasize a long-term view to anyone and they only seem to find people paranoid about the volatility to interview. The constant barrage of negative panics and uninformed public even more.

    And on a side note, people are pulling their funds from S&P stocks and investing into the downgraded treasury bonds. The same amount of money is still out there, just moving in different directions. A bond is less risk, so people think it’s safer. They’ll wake up in a year with substantially less money than those that were smart enough to ignore the media, social and all, and ride the wave.

    • http://twitter.com/JasMollica Jason Mollica

      As someone who use to work in the news business, negative news leads most of the time (the adage “if it bleeds, it leads” comes to mind.)

      There are pundits out there who are telling us to be calm, but the drone of negativity drowns it out.

      Thanks for stopping by, JM.

    • JaK

      Thanks, Jason, good article.

      However, JM, I think you have a very valid point. It’s frustrating because yes, the current economic situation is terrible, but it seems a lot of media does tend to focus on only the negative. Perception is reality, you know? Constant negativity and doom-and-gloom, even if you can argue that it’s truth, does not motivate consumers, home buyers, investors, etc. It only perpetuates the situation. Don’t omit it, but it would be nice to see a little bit of balance.

  • http://vasqpr.com/the-flipside Joe Vasquez

    Excellent point here. Blaming social media is like Tiger Woods blaming his equipment for his awful play. See the analogy. :)

  • http://twitter.com/RyoatCision Ryo Yamaguchi

    Jason, this is actually a very tricky topic for me. First of all, I agree–I really don’t think you can ever blame traditional or social media for contributing to the collapse (or rise, for that matter) of anything. Not because they don’t, but because their purpose is to publish in the face of those movements, to charge forward through them, to give information. And yes that information will have an influence. Of course it will. I have been a little dismayed by every expert (or, “expert”) I’ve seen/heard/read interviewed on the markets, now and really over the past few years. It’s always zen-like, a reassurance, a stick-through-it kind of attitude, which is all perfectly fine except clearly that message is meant to mitigate the forces, to prevent panic. Here’s where I think it is tricky: no, panic is bad, but that message is also more tactical than it is necessarily saying something really true (perhaps it’s true, but it’s intent is not to say something true, it’s to mitigate). So I feel that the media is already giving up some of its role with this debacle, and that makes me really nervous.