How to de-code a finance article

To stay updated on what’s going on in “the markets” — which clearly impacts your money — keeping an eye on financial news is the way to go. But in a world of jargons and content overload, knowing how to break it down for yourself quickly keeps you consistently in the know. Any tricks to that? Yes. Articles use their own vocab and often follow a certain formula. We’re here to deconstruct.

Q: How do I quickly understand a finance article?

The First Sentence

The first sentence of a market recap article will usually tell you the following:

1. The markets were either UP or DOWN.
2. How is that different from the recent trend?
3. Why?

EXAMPLE:
“U.S. stocks fell sharply Wednesday, extending their turbulent run as hopes for additional fiscal stimulus dimmed, coronavirus cases rose and investors continued to question the valuations of tech stocks.”

TRANSLATION:
“U.S. stocks fell sharply (1: stocks were down) Wednesday, extending their turbulent run (2: they have been down recently) as hopes for additional fiscal stimulus dimmed, coronavirus cases rose and investors continued to question the valuations of tech stocks (3: why stocks were down: no hope for more stimulus, rise in cases, and tech stocks are no longer the darling).”

The Numbers

Index performances are quoted in either percentages or basis points. 1 basis point = 0.01% (1/100th of a percentage point), so 100 basis points = 1%.

The three market indexes you usually see quoted are:

• The Dow Jones - Index following the 30 largest companies listed on US stock exchanges 
• The S&P500 - Index following the 500 largest companies on US stock exchanges 
• The NASDAQ - Index of all companies listed on the NASDAQ (trade on the NASDAQ Exchange).

EXAMPLE:
“The S&P 500 slid 78.65 points, or 2.4%, to 3236.92, following a rally of more than 1% Tuesday.”
 
TRANSLATION:
 “The S&P 500 slid 78.65 points, or 2.4% (percentage that corresponds to how many points the index slid), to 3236.92 (the ending value of the index after the slide), following a rally of more than 1% Tuesday (what the index did they day before; aka: it was up 1%).”

The Event

Lastly, the article will dive into the probable causes for the market movement. A few usual suspects:

• Government — Leaders made some decisions recently that affect how companies conduct business (e.g. trade wards, regulations, election-related uncertainty).
• Earnings — When a company announces its earnings, it will either live up to or fall short of expectations. The excitement or disappointment will cause movement in the markets. (e.g. “It was a big earnings week for the NASDAQ with lots of companies beating earnings expectations.”)   
• Newly, pandemics - The mother of all impact in 2020, not just the economic side of it, but the emotional as well. Remember, “the market” is really just made up of investors who are human. When there’s hope for a vaccine or stimulus package, markets climb. The opposite? The markets fall.

Our final Pro Tips: 

• Trends are important - Most financial news should be treated as something that, little by little, helps you understand the big picture. Even if just one piece a week, you’ll start to see trends, which is the most important thing to pay attention to when investing — what is the trend and where do you think it will continue to go?
• Articles are no Magic 8 ball - No article is an accurate prediction of the markets because no one can see the future. If you find yourself reacting and wanting to do drastic things to your investment portfolio — read less and your future-wealth will thank you.