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Paul Tracy

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Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

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Updated January 16, 2021

What is the CNN Effect?

The CNN effect refers to a major negative impact on consumer spending as a result of breaking news.

How Does the CNN Effect Work?

CNN (which was later joined by MSNBC, BBC World News and Fox News) offers minute-by-minute updates on breaking events at home and abroad.
 
The theory behind the CNN effect is that consumers will not leave their homes if a major event is unfolding. Their attention will be diverted to their televisions where they will be watching minute-by-minute updates on a particularly news-worthy situation. This often times leads to a dip in consumer spending.

Consider the loss of the space shuttle Columbia in 2003.  The dramatic events being covered on television kept people in their homes or offices and out of malls, shopping centers, auto dealers, etc.

Why Does the CNN Effect Matter?

Repeated instances of the CNN effect have led investors to expect a dip in the market pursuant to exceptionally news-worthy events. The CNN effect is also a common scapegoat for negative consumer spending reports.

Savvy investors learn to weather the storm or act appropriately with the expectation that "normalcy" will eventually return, rather than take a reactionary stance they may later regret.

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Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about CNN Effect, then please ask Paul.

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