Following the news about a particular equity is the responsibility of every investor. However, in this 24-hour news cycle, investors have to balance access to information with analysis paralysis. The fact is some headlines are more worthy of investor attention than others. It’s important for investors to recognize the difference.
News sentiment is one part of fundamental analysis. A good way to look at it is that technical signals will tell investors what’s happening to a stock’s price. Understanding the news can help investors understand why that movement may be happening. For example, incorporating new analytics and sentiment data can enable investors to make informed decisions.
If a stock faces major price movement on relatively inconsequential news, investors can take advantage of that fundamental discrepancy. On the other hand the term “buy the rumor, sell the news” is a frequent occurrence. There are times when quality stocks may sell-off even after reporting good news. Conversely, a stock may rise on “less bad” news, but that doesn’t mean it’s a stock that investors should buy
A company making news is one of the primary sources of market sentiment and there are good reasons for that. But news items can be either bullish or bearish. For example a new product announcement or revenue deal is bullish, but missing on earnings and or revenue expectations is bearish.
And while the source of a news report is important, quantity also matters. A single positive or negative article may create short-term price action. But when a company is the subject of multiple news articles it tends to provide momentum for a stock’s current direction.
In this article, we’ll provide examples of news sentiment and review the reliability of price movement relative to news sentiment. We’ll also show you how MarketBeat acts as a one-stop resource for all the pertinent news about a stock with free resources as well as premium features available for paid subscribers.
Examples of news sentiment
- Earnings reports – Earnings reports can be a source of bullish or bearish news sentiment. In addition to advising investors about the prior quarter’s earnings and revenue; earnings reports give a company’s management team a chance to issue forward guidance. This peek into the future is, in many cases, more predictive of a stock’s direction in the days and weeks after the earnings report.
When a company meets or exceeds expectations and follows up with forward guidance that suggests continued strong growth, it is almost always bullish on a stock price. However, if a company misses on the top or bottom line or if they issue guidance that suggests slower growth, sentiment often turns bearish.
- Analyst ratings – Many publicly traded stocks have multiple analysts that issue periodic ratings on the stock. These analysts typically have access to information that retail investors do not. As a result, analyst ratings can carry significant weight with investors. When an analyst issues a new rating it is almost always considered a newsworthy event that can have a material effect on a company’s stock price.
- Dividend/Share Buyback announcements – Companies that are in a mature phase of their business cycle frequently return a percentage of their earnings to shareholders in the form of dividends or buying back shares. Both of these are generally considered examples of positive news sentiment. During the Covid-19 pandemic, many companies were forced to suspend or cut their dividends and curtail share buyback programs. This was a reason why some stocks like Disney (NYSE:DIS) struggled during the pandemic.
- New Product Launch - Another source of bullish news sentiment is a new product launch. With a biotech company this could be a drug that delivers successful results in a clinical trial stage or receives FDA approval. Conversely, if a company has to delay a product launch that is generally seen as a bearish indicator.
- Change in Company Leadership - A change in the leadership of a company is another example of news that could be bearish. For example, Amazon (NASDAQ:AMZN) was sluggish in 2021 for many reasons. But one reason was that analysts and investors had to digest what the company will look like after its founder, Jeff Bezos, stepped down as the company’s chief executive officer (CEO).
- Economic reports – Every month, investors receive reports on many facets of the economy. The federal government, large universities and other organizations regularly publish reports showing the status of a specific measure of economic activity, such as durable good sales, unemployment and retail sales. By comparing the results of an economic report to the previous release of that report, investors can identify general economic trends.
- Market News – Any news that impacts the country’s monetary policy should be of interest and/or concern to investors. For example, every month investors pay close attention to the press conference from the Federal Reserve chairman. In a similar fashion, individual stocks and sectors can be affected by the actions (or inactions) of Congress.
How reliable is price movement due to news sentiment?
A common statement is “buy the rumor, sell the news.” This means that investors will often become bullish on a stock in anticipation of a positive news item. In many occasions, this can cause a stock to become overvalued. When the news finally breaks, opportunistic investors will take profits causing the stock to go down in the short-term. However, if the overall trend is positive, this can be a time to buy the stock on the dip.
Conversely, a stock can sometimes get sold off on rumors of a negative news item. However, if the news is not as bad as feared (for example a company produces “less bad” earnings) then the stock may rise as investors realize that it was being oversold.
Does this mean that news sentiment is a poor predictor? No, it simply means that news sentiment is one part of the due diligence that is required of every investor.
How does MarketBeat help you digest news quickly?
MarketBeat is a one-stop source that gives you all the information you need to know about a particular stock. For general market news, investors can access the News tab from the main menu on Marketbeat.com. Categories include: economic news, market news, technology news, U.S. news, Canadian news, world news, instant news alert, and more. All Access subscribers can also access a real-time news feed.
For stock-specific news, all subscribers can access the latest headlines on a stock just by clicking on the Headlines tab on the menu for that stock. This list will include articles from the MarketBeat team of analysts. However, there is also a curated list of articles culled from major financial news outlets.
All Access subscribers have access to MarketBeat’s Trending Media Mentions list. MarketBeat tracks news articles from many sources, tagging them by company and analyzing them for sentiment. The change percentage listed compares mentions in this time period to mentions in the previous time period of the same length.
The final word on news sentiment
News sentiment is one component of market sentiment and can be bullish or bearish. Keeping track of breaking news, and what that news may mean for a stock, is critical for making profitable investment decisions. When evaluating the veracity of news sentiment it’s important to measure both the quality of the news as well as the quantity of the news.
How much value an individual investor places on news sentiment will depend on their investing style and on what type of indicators they prefer to follow. One benefit of choosing MarketBeat as your financial information resource is that access to all the relevant news about a stock is just a few clicks away.
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