TRUESHARES

TRUESHARES

How to Navigate Headline Risk

A CEO announces a new product and its competitors’ stocks plummet. The President gives a reassuring speech and the market stabilizes. A social media post goes viral and the associated companies’ stocks do too. These movements in the market are all examples of headline risk.

Headline risk is the possibility that a news story will negatively affect an investment, a sector, or the entire stock market.1 This type of risk most commonly impacts one or a handful of companies, but it can bleed throughout the market depending on the headline. Even incorrect or misleading headlines can make market moves, and they can come from virtually any source.

The Silicon Valley Bank failure2 in 2023 can be seen as an extreme example of headline risk as the bank’s demise was sparked by an announcement released by the bank itself. When SVB announced it needed to raise $2 billion and was selling nearly as much of its bond portfolio, investors panicked and sparked a massive wave of withdrawals. SVB stocks fell 60% the next day.2 The effect was endemic to niche banks as more regional bank stocks plummeted and several more went under. The hit to the sector ended up impacting the overall market as the S&P 500* was still down a week later.2 Yet headline risk can work in the opposite direction as well. In the midst of the crisis, President Biden gave a reassuring speech that momentarily tempered the panic.

With a new president in the white house this year, the onslaught of headlines shows no signs of slowing, and the market is taking note. “Tariffs” is the word on the tip of everyone’s tongue as the Trump administration plays a game of will-they-won’t-they with its trading partners. Earlier this month, stocks plummeted in anticipation of the announcement of 25% tariffs against Canada and Mexico, but recovered slightly when those tariffs were delayed.3 The tariff conversation hits some sectors harder than others. US automakers, in particular, are at risk of both tariffs and headlines about tariffs. Farm equipment manufacturers and US alcohol brands have also been negatively impacted.

Headline risk certainly doesn’t just originate from the white house. When Deepseek unveiled an AI model that is cheaper and more efficient than models from top US tech companies, the sector’s stocks collectively plummeted.4 Arabica coffee futures have been soaring amid reports of unfavorable weather conditions in Brazil’s coffee-growing region.5 Gamestop and MicroStrategy shares jumped 10% and 2%, respectively, after the CEO of Gamestop posted a photo on social media of himself and the CEO of Microstrategy.6 

While there is nothing an investor can do about the headlines, there are ways to insulate one’s investments from headline risk. Because headline risks tend to cause acute and specific shocks, we think it’s important for an investor to diversify their holdings.

There are also ways of hedging against acute drops and buffering against dips. Adding TrueShares Seasonality Laddered Buffered ETF (ONEZ) to a diversified portfolio can help reduce volatility compared to the U.S. large-cap equity market through a fund-of-funds approach. ONEZ includes TrueShares Structured Outcome Uncapped Buffered ETFs, which partially buffer against losses (8%-12%) during a 12-month period. ONEZ also includes TrueShares Quarterly Bull and Bear Hedge ETFs (QBUL and QBER, respectively), which aim to protect against broader market declines while also potentially benefiting from an acute decrease in U.S. large-cap equities.

No one knows what the next headline will be, where it will come from, or what effect it will have on their investments, but investors can employ strategies for navigating the neverending stream of breaking news.

  1. https://www.investopedia.com/terms/h/headline-risk.asp
  2. https://www.nytimes.com/article/svb-silicon-valley-bank-collapse-timeline.html 
  3. https://www.cbsnews.com/news/stock-market-stocks-djia-dow-jones-sp500-trump-tariffs-impact/
  4. https://money.usnews.com/investing/articles/what-deepseek-ai-means-for-tech-stocks
  5. https://finance.yahoo.com/news/coffee-york-jumps-6-record-203742250.html
  6. https://finance.yahoo.com/news/why-social-media-post-boosting-173524861.html

* S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. One cannot invest directly in an index.

For a full list of ONEZ holdings, visit: https://www.true-shares.com/onez/

For a full list of QBER holdings, visit: https://www.true-shares.com/qber/

For a full list of QBUL holdings, visit: https://www.true-shares.com/qbul/

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