Scary statistics highlighting the truth about the media … Louis Navellier calls out three of the financial media’s scare tactics … a suggestion to help improve returns in 2022

If you’re looking for a New Year’s resolution, here’s an idea…

Stop paying attention to the majority of the media’s headlines.

Let’s take a moment to review some statistics related to our “objective” press (sources in parentheses). As you read them, ask yourself if reporting the impartial truth is the goal.

Sensational stories form about 95% of media headlines (The Guardian).

Roughly 90% of all media news is negative (Quora).

An average of nearly 80% of media companies print biased stories that avoid negative reporting on their advertisers (ScienceDirect).

In one survey, 65% of respondents said that most media outlets would ignore mistakes, engage in cover-ups, and purposefully misinform just to capture readership (New York Times).

Finally, 79% of Americans believe the media distorts the objective facts and presents a biased narrative that attempts to sway opinion (Pew Research Center).

***We, as media consumers, aren’t exactly innocent victims

In many ways, the press is just giving us what we want. Or rather, what we respond to.

The unfortunate truth is many of us are drawn to bad news. When a Russian news website decided to publish only positive stories for a day, it lost 66% of its readers (Quartz).

This helps explain why headlines with bad news draw 30% more attention (Kinder).

And perhaps that’s why, last year, 87% of Covid-19 media coverage was negative, despite plenty of opportunities to report on lowering case counts, or positive economic “reopening” news from parts of the country (New York Times).

***The same dynamic plays out with the financial news media

From a Yale University research piece:

We find the media is more likely to cover firms’ earnings announcements if they convey poor operating performance, suggesting the media tilts its selection process toward negative news.

We estimate the size of the tilt in media coverage and find that, controlling for the content of news, a news story is approximately 22 percent more likely to be covered if it is negative…

Given the important role financial media plays in capital markets, a central contribution of this paper is in showing that the media tilts its selection process toward negative news.

Bottom line, be careful of the media you consume.

Too much biased negativity can impact your market decisions, which has the potential to derail your long-term goals.

***With this in mind, let’s turn to legendary investor, Louis Navellier, who just called out the financial press for three scare tactics they’ve used in 2021

For newer Digest readers, Louis is a legendary quantitative investor. “Quant” simply means he uses numbers and algorithmic rules to guide his investment decisions. He’s so synonymous with a numbers approach that Forbes named him the “King of Quants.”

As you might expect, relying on numbers means Louis’ investment style is rooted in objectivity. He follows cold, impartial data – not an agenda or preconceived narrative.

In Louis’ Accelerated Profits issue on Monday, he took the media to task for its focus on negativity. And rather than just call them out, he rebutted three of their claims.

Here’s Louis setting the stage:

The financial media continues to try to scare investors out of the stock market.

It’s had three main scare tactics of late. Today, I want us to take a few minutes to dispel the financial media’s lies and discuss why our stocks will remain an oasis in 2022.

The first scare tactic Louis highlights is the notion that the “smart money” is exiting the market:

The financial media likes to point out that billionaires like Elon Musk are selling a record amount of stock, insinuating that if the smart money is selling then a market correction may be imminent.

But as the Wall Street Journal recently pointed out that while some folks are selling stocks, companies are loading up on shares: Stock buybacks have breached an all-time record.

Stock buybacks rose to $234.5 billion in the third quarter, which may explain why companies continue to post better-than-expected earnings.

Remember, stock buybacks boost underlying earnings per share—so that bodes well for the upcoming fourth-quarter earnings announcement season. FactSet currently estimates that the S&P 500 will achieve 21.3% average earnings growth in the fourth quarter.

I’ll add that, despite the press featuring politicians like Elizabeth Warren who demonize buybacks and call for their abolishment or regulation, there’s no reason they can’t continue at a record pace.

From MarketWatch:

…the market expects buybacks next year can rise much higher and “well beyond” the record pace seen during the third quarter, according to a note earlier this week from Nicholas Colas, co-founder of DataTrek Research.

“Companies are not buying anywhere near as much stock as they can,” he said, in the emailed note…

He agrees that buybacks in 2022 could outpace this year’s volume, partly because company cash flows are “good” and “consumers are spending” …

Deutsche Bank analysts also expect buyback volume to rise next year. “Rising earnings should propel gross buybacks to a record trillion dollars in 2022,” the analysts wrote in a Deutsche Bank Research note dated Dec. 10.

***Scare Tactic #2 – a market correction is imminent

Back to Louis:

We actually already had the market correction between November 26 and December 3 when the stock market overreacted to the COVID-19 Omicron variant and unnecessary fears about the Federal Reserve tapering. And the NASDAQ successfully retested these recent lows on Friday, December 17.

As we discussed in Friday’s Special Market Podcast, the retest occurred on light trading volume.

So, in my opinion, it is safe to invest in the stock market right now since most of the risk has already been shaken out.

I’ll add that the recent market weakness has taken pressure off of lofty valuations.

Below, we look at the price-to-earnings ratio for the S&P 500 dating back to 2018. Note how valuations spiked earlier this year. But since then, they’ve been dropping.

Yes, they’re still elevated relative to the historical mean, but not to the same extent as before.

***Scare tactic #3 – spiking inflation will crush growth stocks

This is a big one.

And, to be fair, earlier this year and in recent days, we have seen some sector rotation. Money has flowed from certain growth sectors toward defensive stocks. But that doesn’t mean inflation will crush growth in 2022.

After providing details on the inflationary surge, Louis focuses on its impact on growth stocks:

Here’s the good news: Stocks, especially growth stocks and dividend growth stocks, are the best way to protect yourself in an inflationary environment.

Millions of new investors have already opened brokerage accounts in an effort to protect themselves against the highest inflation in 39 years (since 1982). And many of these investors poured into our fundamentally superior Accelerated Profits stocks.

To be clear, Louis isn’t calling for the entire market to perform well next year. He’s referencing a subset of fundamentally strong growth stocks.

With that caveat, back to Louis:

The fact is that year-over-year earnings comparisons are growing more difficult, and the breadth and power of the overall stock market is growing more narrow.

Our growth stocks have traditionally prospered in a narrowing stock market environment, as investors pour into stocks with accelerating earnings and sales momentum.

***Who will you listen to in 2022?

Despite the statistics referenced at the top of today’s Digest, my goal isn’t to villainize the entire financial press. There is plenty of solid, objective reporting.

But skepticism – even of glowing, positive headlines – is often a wise reaction.

Here’s a recommendation…

In 2022, every time you’re considering putting some of your hard-earned money into an investment, take a minimum of, say, just 15 minutes (more time if you have it) to try on the argument against your potential investment.

Why is your thesis flawed? Why will things not play out as you anticipate? What’s going to slow down the growth? What regulation might kneecap the adoption?

And if/when things do go wrong, how much downside risk (or upside opportunity cost) are you facing?

At worst, this process will strengthen your conviction in making the new investment. At best, it will save you (or make you) a huge chunk of money.

Bottom line, I don’t know what 2022 will bring, but it’s all but certain the headlines will be awash in frightening exaggerations. See them for what they are.

Have a good evening,

Jeff Remsburg