Media Worry About Another Black Monday

     This week marks the unhappy milestone of Black Monday for Wall Street, which had some journalists warning “it could” happen again. Even if it doesn’t, the media hammered home the prospect of a possible recession.

      The Dow Jones Industrial Average nosedived Oct. 19, 1987, when panicked selling cost investors 22.6 percent in one day of panicked selling. But do investors in 2007 need to be worried about another crash?

     Barron’s financial weekly’s cover asked that question on October 15: “Black Monday … Why Wall Street doesn’t think it can recur. Why Wall Street could be wrong.”

     “CBS Evening News” actually compared 1987 and 2007 prompting correspondent Alexis Christoforous to say, “Can it happen again? It could.”

     Even CNN anchor John Roberts try to damper a stock report by Ali Velshi on October 1 by cherry-picking the two worst market crashes in U.S. history. Velshi presented an optimistic view of the stock market, reminding viewers that “the Dow is up 11.5 percent [for the year].”

     Velshi had reason to be encouraged because “in the last 15 years, the fourth quarter has been very good.” But then Roberts decided to spoil the party:

     “We know historically speaking that the fourth quarter isn’t always good for the stock market. There were those years 1929, 1987,” said Roberts.

     In addition to worrying about a crash, the media used economic problems including the housing “crisis,” oil prices and the loss of 4,000 jobs in August – that turned out to be wrong by 89,000 jobs gained – to present an exceptionally bleak outlook.

     As ABC’s Dan Harris put it on the October 16 “World News with Charles Gibson,” “And the gloom just keeps on coming.” Yes, it does – from journalists. All three network newscasts featured gloomy economy reports that night.

     “Good Morning America” even continued the negativity on October 17 by talking about “red flags” for the economy (complete with little red flag graphics for each item) including the dreaded sweater factor.

     ABC’s Bianna Golodryga explained, “Early warning signs of an economy in trouble … when sweater sales go up watch out.”

     But according to the October 15 Wall Street Journal, a stock market crash is unlikely and said investors “see stocks continuing their rebound.”

     As for recession: “By most economists’ terms, a recession is defined as two or more consecutive quarters of GDP decline -- something we haven’t seen since 1991. By that narrow definition we're not even close. Of 50-plus economists surveyed by research firm Blue Chip Economic Indicators, not one is predicting a recession. They still expect GDP to grow 2.6% next year.” wrote Fortune’s Peter Eavis on October 2.


The Crash that ‘Could’ Happen


     The economics of 1987 and 2007 seem similar but many things have changed in 20 years. Not enough to silence media concern.

     After explaining some reasons why a crash is unlikely, Barron’s Andrew Bary wrote, “Despite all this, a decline of 1987 proportions, while unlikely isn’t impossible.” Bary then made the case for a huge stock decline, even saying “the optimists’ case has some big flaws.”

     CBS’s Alexis Christoforous worried that such a crash could happen again based on comparisons between 1987 and 2007.

     “[Black Monday] was made worse by computer program trading, but the things that triggered it were overvalued stocks, a weak dollar, a period of extreme market volatility and a summer of worrying economic news. Sound familiar? Some market strategists are warning investors now to strap in,” said Christoforous on October 14.

     The CBS correspondent didn’t mention that the crash of 1987 was followed by a bull run, and didn’t negatively impact the overall economy. In fact, by the end of 1988 the DJIA had seen a 25 percent gain from the post-crash number.

     Other experts were not as worried as Christoforous and Barron’s. Unlike some in the media, “Hardly anyone is thinking about” the crash of 1987, according to Phil Roth (quoted by The Wall Street Journal on October 15). Roth is a chief technical market analyst at the brokerage firm Miller Tabak.

     That Wall Street Journal article by E. S. Browning also disagreed with the “Evening News” assertion that stocks are “overvalued.”

     “Stocks don’t look as overpriced today as they did in 1987. Today, the companies in the Standard & Poor's 500-stock index trade only a little above the historical average of 16 times profits for the past 12 months. In 1987, the S&P 500 was at more than 20 times profits.”

Sound Familiar?

    While not all reports warned of a possible stock market crash, worries and downbeat predictions have been a theme in media coverage of economic issues.

     CBS “Early Show” correlated the anniversary and a “gloomy outlook for stocks” on October 16: “Not a great week so far for this market and it’s a historic one, the anniversary week of the market crash of 1987. This is a week bringing a lot of reminders that what’s been bugging this market will keep on doing that for some time,” said Susan McGinnis.

     McGinnis complained about a 100 point-drop in the Dow on October 15, but without mentioning the record high for the Dow on October 11 and record close of 14,164 on October 9.

     On October 16 alone, ABC, CBS and NBC evening news programs all provided viewers with doom and gloom. ABC’s Dan Harris even asked, “Should we be panicking?”

     But the answer to Harris’s question might have surprised viewers.

     “Secretary Paulson, Chairman Bernanke and economists say, ‘No.’,” stated Harris after spending 1 minute and 43 seconds telling viewers how bad the U.S. economy is doing.

     Just since September 1 there have been 38 negative economic stories on ABC, CBS or NBC evening broadcasts in just 46 nights. Reports on gas prices, housing and unemployment supplied near-daily fear and worry. The media even continued a four-year trend of talking about recession, despite what has now become 49 straight months of positive job growth.

     ABC’s Bill Weir asked if the U.S. was “headed for a serious economic downturn or even recession,” because of August job losses in a September 8 “Good Morning America” segment called “Road to Recession.”

     “Your Money” co-host Christine Romans declared that “people [are] whispering about the risk of a recession” and claimed “the stock market still hasn’t found its footing” on CNN September 15. Romans claim contradicted the expert she was interviewing who said “It’s a pretty good [economic] world out there.”

     One big concern was jobs after the August unemployment report was released and said that 4,000 jobs had been lost. The media quickly used it to bolster the case for a worsening economy. USA Today ran the headline “Job dips heighten fears of recession” on September 20.

     But after the Labor Department revisions were released, it turned out that jobs weren’t actually lost in August, but that 89,000 jobs had actually been gained, in addition to 110,000 jobs gained in September – bringing us up to 49 straight months of job growth.

     Recession fear-mongering is nothing new. As the Business & Media Institute pointed out in a September article, “Media Coverage Rated ‘R’ for ‘Recession,’” everything from oil prices, hurricanes, global warming and terrorism were supposed to plunge the U.S. economy into recession since August 2003.

     “Bad News Bears,” another BMI study on economic reporting, found that network evening shows presented a bleak economic picture 62 percent of the time between Aug. 1, 2005 and July 31, 2006. It also used that bad news to attack President Bush and Republican incumbents.

     BMI adviser and Hillsdale College professor Gary Wolfram said, “It’s [the media] been looking for the recession for years.” Now that the idea has picked up steam, he said, don’t look for the chatter to stop anytime soon.

The Worst Is Over

     Despite all the worries being spread by journalists, some experts have pointed out the differences between 1987 and 2007.

     Barron’s weekly did at least explain that the “help” of the Federal Reserve, lower interest rates, and “much more stable foundation of valuation” for stocks make a case for optimism. The newspaper also made the crucial distinction that the U.S “economy is stronger now than it was in 1987.” 

      As for the housing “crisis” and its affect on the market, “many investors believe the worst of the year’s troubles are over,” wrote E.S. Browning in the Journal.