What else would affect your mood?

One of my favorite responsibilities as Chief Investment Officer at Ritholtz Wealth Management is the quarterly conference call for our clients. I review 30 charts in 30 minutes that explain where we are in the economic cycle, what's happening in the markets and what that means for their portfolios. I like to end the conversation with a thought-provoking thought, often related to investments, that they may not have considered before.

This quarter's talk was about sentiment. I've gotten so many emails about the latest slides that I thought I'd share this out-of-conference discussion here.

My previous discussions of sentiment have focused on two things: the general unreliability of surveys-when people are asked questions and assumed that their answers are accurate and honest; they are not, often because people are reluctant to say "I don't know." The second problem is how staggering the polling data has been over the past decade: for example, the well-being people reported in 2022 was worse than the worst events of recent decades. Either way, something is going wrong.

From an economic point of view, the situation is much better than people are willing to admit: the rate of inflation has fallen by two-thirds from 9% to just over 3%, but 60% of those surveyed believe that inflation "continues to increase." The economy is not moving in the right direction, even though the net worth of Americans rose the most in decades during the pandemic. Since 2019, households have invested more, home values have risen, and savings rates have increased. Recent growth driven by fiscal stimulus has captured a lower economic stratum than the growth we saw in the 2010s driven by monetary stimulus and has been concentrated in stocks, bonds, real estate and businesses, such as among the top 10%. While the recent increase was accompanied by a spike in inflation, it was also the first time in a long time that the bottom half of the labor force had a significant wage increase. Of course, the two problems are related, since much of the recent inflation can be attributed to all that fiscal stimulus.

And yet, sentiment indicators say people are angrier, see themselves as less well off and say they are more unhappy than ever before. Even if politics and partisanship deserve some blame, what influences it? This was evident back in 2015, when the recovery from the financial crisis was in full swing, but was widely ignored by much of the population.

People's perceptions don't match the data. Why? "

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Looking into this problem in more detail, I found some interesting data from Harvard's Nieman Media Lab (by Bruce Melman). Two separate data sets reveal the main sources of this anxiety.

The first set of charts covers two decades through 2019 and is titled "Prevalence of Emotional Burden in Headlines." While the past few decades have been a challenge for all media companies, the 2010s seems to be a period where they have moved to a much more aggressive approach to online presence. Perhaps most significantly, coverage has become increasingly "clickability" oriented with headlines filled with emotionally rich language: words reflecting "Disgust" increased 29%, "Sadness" increased 54%; words reflecting "Anger" increased 104%.

The biggest increase was seen for perhaps the most emotionally charged word: "Fear" soared 150%. And words expressing "Joy" or "Neutrality"? Decreased by 14% and 30% respectively.

But it's not just headlines that create this world; it's also the choice of topics and media focus that can take our understanding of the world sideways. Consider the causes of death in the United States:

You are most likely to die from heart disease (30.2%), cancer (29.5%), a car accident or fall (7.6%), and so on. At the bottom of the list are suicide (1.8%), murder (0.9%) and terrorism (0.01%).

The way the media covers this is the complete opposite: the things that are least likely to kill you are covered the most (from most coverage to least): terrorism, murder, and suicide. Heart disease is near the bottom of the coverage.

I believe that the combination of these two factors - headlines negatively colored by words and excessive coverage - causes sentiment indicators to fall short of the reality of the economy or, more broadly, the real world around us.

There has always been a sensationalized, yellow newspaper business. The industry is fighting a losing battle against apps and online services that have crushed much of traditional media's revenue. The answer has been to approach news coverage in the algorithm-like, dopamine-chasing way that makes social media so toxic. Apparently, the plan of action for business seems to be "if you can't beat them, join them," even if it makes the rest of us miserable.

We are what we eat, including media.

What is different today is how online we are and the blending of traditional media with online media and perhaps worst of all, social media. It makes us unhappy and increasingly distances us from reality.

There are real problems both here and around the world, but the way we envision the world is radically different from what it actually is. This has huge implications for everything, but especially for our portfolios, policies and politics...

Sm. also:

• The consequences of failure (Melman, August 21, 2021)
• Teens spend an average of 4.8 hours a day on social media (Gallup, Oct. 13, 2023)
• Americans' net worth rose the most in decades during the pandemic (Bloomberg, October 18, 2023)
• The annoyance economy: data alone doesn't reflect how annoying and stressful it is to be a consumer now (Atlantic, October 19, 2023)
• Americans' gloomy views on the nation's politics (PEW, September 19, 2023)
• Previously:
  • Is partisanship the source of consumer sentiment? (August 9, 2022)
  • The problem with consumer sentiment (July 8, 2022)
  • Mocking sentiment (May 17, 2022)
  • Rethink your media diet (February 2, 2017)
  • Reduce the noise in your investment process (November 9, 2013)
  • More signal, less noise (October 25, 2013)
  • The Price of Attention (November 2012)

Sources:
Changes in U.S. household finances from 2019 to 2022
Consumer Finance Survey
Federal Reserve October 2023
Causes of Death
Authors Saloni Dattani, Fiona Spooner, Hannah Ritchey, and Max Roser