As the Big Stories Churn

We aren’t even two months into 2020, yet many pundits believe the Wuhan coronavirus will make the global expansion gravely ill. Some have already started slashing market forecasts for the year. Frequent MarketMinder readers likely already know we think fears over the virus’s market impact are overdone. But to us, they are part of a longer-running pattern prevalent throughout this bull market. As soon as one huge story fades, another pops up—like a less-fun game of Whac-A-Mole. Here is a look back at some of the fleeting frenzies that came and went over the past 11 years. In our view, the collection tells a simple tale: Investors are better off tuning out the noise rather than reacting to The Next Big Story.  

We don’t have to go back far to see this Big Story headline churn. US-Iran tensions dominated headlines at 2020’s start, sparking World War III warnings. Those fears virtually vanished by mid-January, just in time for coverage to flip to the coronavirus. Similarly, while global equities enjoyed their best year in a decade in 2019, the year featured plenty of Big Stories—some scary-ish, others supposedly monumental for investors.

Remember when the US yield curve flattened—and then inverted—last summer, prompting recession forecasts that didn’t come to fruition? When the yield curve “un-inverted” in early October, far fewer trumpeted the news. Earlier in 2019, Vermont Senator and Democratic presidential candidate Bernie Sanders introduced Medicare for All legislation—gobbling up news coverage. A few other Democratic candidates backed it, too. Health Care stocks reacted negatively to fears of quasi-nationalization in the short term, plunging almost -5% in three days.^[i] But that hype passed. Health Care ended the year strong, trailing only Technology in Q4. You could say the same of value stocks’ brief burst of outperformance in September. Headlines were sure it was a huge rotation after years of value lagging. It came and went in a month’s time.

Headlines didn’t hype only scary stories. They also heralded allegedly paradigm-shifting developments. One huge social media company—backed by a number of prominent financial services and payment providers—unveiled plans to release a cryptocurrency named for an astrological sign that isn’t Gemini and rhymes with shmeebra. Some predicted this foray would make digital currencies mainstream, with regulators reportedly worried of potential fallout. Congress people got worried and asked incomprehensible questions. Since that announcement, the hype has evaporated and many partners have quietly dropped their support.

You can find myriad examples of Big Stories that were supposed to either impact stock returns or represent a landmark market shift. Instead of altering the investing landscape, they simply fell out of the news cycle as headlines churned onto something else.

Go back to the bull’s beginning. In late 2009, many feared Dubai World’s debt issues threatened the Emirate’s finances and could spark a financial crisis redux—spooking investors worldwide.^[ii] Those worries, which likely reflected the recent pain of the last bear, blew over fast.

In 2010, high-frequency trading (HFT) starred in fears over May’s “Flash Crash.” Despite stocks’ near-instantaneous recovery, many called HFT a new market risk. A decade later, with HFT existing throughout, the bull continues—occasional sharp short-term swings notwithstanding. Later that year, US municipal debt grabbed eyeballs after an analyst predicted a tsunami of defaults on 60 Minutes. That wave never made land.

Towards the end of 2012, an expiring US payroll tax holiday led to predictions of consumer spending stumbling, knocking economic growth. Yet early-2013 data confirmed the negative impact was vastly overstated, and folks moved on.  

In 2013, several stories churned through the news. In March, Cyprus bank failures seemed like a big domino in the eurozone’s sovereign debt crisis—they weren’t. Two months later, an EU-China trade tussle over solar panels inspired visions of a damaging trade war that didn’t come to pass. Detroit filed for Chapter 9 bankruptcy in mid-July, resurrecting muni debt fears. But Detroit’s problems were local—not the beginning of a national tidal wave.

In 2014, some pundits called the Foreign Account Tax Compliance Act (FATCA) a regulatory risk for markets—an overstated worry, since banks had time to adjust and FATCA lacked broad market impact. High Biotech industry valuations conjured “bubble” worries and even got the Fed’s attention that summer. The industry suffered for a spell, but the broader market fallout was minimal. After Biotech valuation worries faded, HFT returned to the fore—with a new book rekindling concern over allegedly nefarious practices.

In 2015, Puerto Rico’s municipal debt grabbed the spotlight as another alleged trouble spot. Headlines proclaimed the island “America’s Greece.” Yet even after Puerto Rico’s first-ever default, a cataclysmic disaster didn’t ripple through domestic debt markets.

In 2016, subprime auto loans had a moment when delinquency rates hit a two-decade high. After rekindling some 2008 memories, the alleged problems never left the lot. Later in the year, the Chinese yuan joined the IMF’s reserve currency basket. This followed years of niche fears that the yuan’s inclusion could displace the dollar as the world’s reserve currency, rendering US debt unaffordable in the process. That concern repeated in 2017 due to speculation about non-existent government-backed digital currencies like “Fedcoin” or “IMFcoin." All these worries vastly overrated reserve currencies’ importance, but they cycled through headlines anyway.

Also in 2017, tracing President Trump’s tweets was all the rage, with analysts diagramming sentences left and right. But markets reflected little impact and didn’t much fret all the spilled covfefe. Three major hurricanes struck US shores, triggering fears of economic fallout. Like coronavirus today, these were human tragedies, but they didn’t stop stocks.

In 2018, the US withdrew from the Iran nuclear deal, prompting geopolitical and Energy sector concerns. After some harsh political rhetoric, the story receded. The Supreme Court’s decision to legalize sports betting made it seem like the gambling industry was the next big investment opportunity. That has yet to come up a winner.

The common thread for all these Big Stories: They generate a lot of noise, which isn’t actionable for investors.^[iii] Headlines constantly hype these stories as a sign today is new, different, unique—and often scary. Yet the constant churn—some stories fading, others appearing—shows reacting to widely watched headlines is folly. Many of these supposedly huge developments drove no material market reaction. Others may have caused a blip here and there. But trading on any of them could easily have been a costly error for investors needing long-term growth. Keep that in mind when coronavirus fades and some other huge, eyeball-grabbing thing takes its place.