What is news sentiment? A beginner's guide to the stock market:

Ramsey Shaffer

Babbl Cofounder & CEO

October 9, 2022

6 min read

Well, if you’ve made it to this page, it seems fair to assume you’re intrigued by the idea of uncovering stock market insights from the news without actually having to read it all. This is our quick introductory overview of how we automate the legwork of news insight discovery, structured in the format of a question & answer session. For us, this is a bit of a manifesto-lite on why we’re building Babbl in the first place. Let’s begin:

What is stock market news sentiment?

Stock market news sentiment generally refers to the overall tone or sentiment of news stories about individual stocks, topics pertaining to stocks, or the stock market at large. This can include news stories from various sources, such as financial news outlets, blogs, newsletters, and social media — in our case, we refer to the broader landscape of text being written about stocks online across all these platforms as “news”, whether it’s written by a professional journalist or not.

The term sentiment broadly refers to any measurable indicators of mood, tone, or attitude being expressed about a given subject. This sentiment can (and often does) have an impact on the attitudes and behaviors of investors. For example: if the majority of news stories about a stock have a positive sentiment, it could help to boost investor confidence and encourage buying activity. On the other hand, if the majority of news stories have a negative sentiment, it could lead to decreased investor confidence and selling activity.

Can news sentiment be used to trade stocks?

One way to use news sentiment to trade stocks is to monitor the sentiment of news stories about a particular stock or the overall stock market. If the sentiment of the news stories is generally positive, it could be a good time to buy the stock, as other investors may also be feeling optimistic and be more likely to buy. On the other hand, if the sentiment of the news stories is generally negative, it could be a good time to sell the stock, as other investors may be feeling pessimistic and be more likely to sell. The impact of sentiment on price may depend on a number of factors, such as the overall volume of news, the time window over which the sentiment is being expressed, and the makeup of investors actively trading the stock in consideration.

Another way to use news sentiment to trade stocks is to look for news stories that have a particularly strong positive or negative sentiment. For example, if a news story has a very positive sentiment and is likely to have a big impact on a particular stock, it could be a good opportunity to buy the stock before other investors catch on and drive up the price. Similarly, if a news story has a very negative sentiment and is likely to have a big impact on a particular stock, it could be a good time to sell the stock before the price drops.

In either use case, it is important to note that news sentiment is just one factor to consider when trading stocks, and it should not be the only basis for making investment decisions. It’s always a good idea to do your own research and consider other factors, such as a company’s financial health and performance, before making a trade. That said, if you’ve done the research and feel confident about such underlying aspects of stock performance, sentiment can serve as an important differentiator for determining when to buy or sell.

Do any tools exist already for monitoring news sentiment?

The short answer is yes, there are tools out there to aid in gauging the news sentiment about a stock, but none that do it well… that is, until Babbl. Existing tools typically use natural language processing and other techniques to automatically analyze the sentiment of news stories and other online content. Some examples of tools currently on the market:

Google Alerts

This is a free tool from Google that allows you to set up alerts for keywords or phrases of your choice, and receive notifications whenever new content containing those keywords or phrases is published online. You can use this tool to set up alerts for specific stocks or the overall stock market, and then manually monitor the sentiment of the news stories that are published.

Social Media Monitoring Tools

There are many tools available that allow you to monitor social media for specific keywords or phrases, and track the sentiment of the posts and comments that are made about those keywords or phrases. Some examples include Hootsuite, Mention, and Brand24. These tools, however, are designed with the purpose of aiding in brand marketing, and are not tuned to be used easily in measuring sentiment about stocks and stock market language in particular

News Sentiment Analysis Tools

There are also a handful of tools that are designed specifically for analyzing the sentiment of news stories and other online content. These tools typically use natural language processing and other techniques to identify sentiment features within a news story and to assign positive, neutral or negative scores. Some examples of these tools include Lexalytics, Sentiment140, and Vantage Point. These tools are a starting point, but are not fine-tuned for finance language, and thus do not always represent true sentiment perfectly through a stock market lens.

a mountain of news (via DALL-E)

Why not just read the news, the old-fashioned way?

You can, of course, spend your time reading the news manually, and that is the way it most people gauge the overall mood about stocks currently (aside from tracking stock price alone). However, there are a number of challenges and issues with the current stock market news / social media landscape that can make it difficult for investors to get the information they need to make informed decisions in a timely manner. Four primary challenges include:

Volume

A primary challenge is the sheer amount of information and news available about the stock market. With so many news sources and individual opinions published daily online about the stock market (literally 100,000’s of posts per day), it can be difficult for investors to sort through it all and find the information that is most relevant, reliable, and actionable. This can lead to confusion and misinformation, which can make it harder for investors to make good decisions.

Bias & Manipulation:

Another challenge is the potential for bias and manipulation in stock market news. Some news sources may have a vested interest in certain stocks or investment strategies, and may publish news stories that are biased or misleading in order to influence investor behavior. This can make it difficult for investors to get a clear picture of what is really happening in the market, and can lead to bad investment decisions.

Misaligned Incentives

A third challenge — and perhaps the biggest issue — is that many news sites rely on on-page advertisements as a primary source of revenue. This can misalign incentives, and lead news outlets to directly or indirectly obscure useful news information. Publishers who create content for ad-based news outlets are often incentivized to write content with click-bait titles or convoluted structures in order to drive more clicks and keep readers on the page longer, so that they can serve readers advertisements.

Speed & Volatility

Finally, the speed and volatility of the stock market can also make it difficult for investors to keep up with the latest news and developments. With prices and trends changing rapidly, it can be hard for investors to stay on top of the latest information and make decisions that are based on the most up-to-date insight.

Overall, well some may argue whether the financial news system is “broken”, investors certainly face challenges and limitations that make it difficult to find high-quality information to inform their investment decisions.

Can we solve for the shortcomings of the current news landscape?

While it may not be possible to completely solve all of the problems with stock market news, there are steps that can be taken to improve its accuracy, reliability, and actionability.

One way to address the issue of the sheer amount of information available about the stock market is to use tools and technology to help filter and organize the information. For example, investors can use news aggregation and curation tools to help them find the most relevant and reliable news sources and stories. This can come in the form of artificial intelligence and natural language processing to automatically analyze the sentiment and credibility of news stories, and to identify potential biases or manipulations.

Another way to address the issue of bias and manipulation in stock market news is to promote greater transparency and accountability in the news industry. This could include measures such as requiring news organizations disclose any conflicts of interest or biases, and holding them accountable for publishing accurate and reliable information. It could also involve efforts to promote media literacy and critical thinking among investors, so that they can better evaluate the credibility and reliability of the news stories they’re reading.

Finally, to address the issue of the speed and volatility of the stock market, investors can use tools and technology to help them stay on top of the latest news and developments. This can include using real-time news feeds and alerts, as well as tools for analyzing and visualizing market news trends and data.

How does Babbl fit into the puzzle?

All said, our goal at Babbl is to make it simple for investors to navigate the complex news landscape in their search for quick, actionable information. There are many shortcomings of the current financial news system — the sheer volume, bias & manipulation, misaligned incentives, and the speed & volatility by which news is disseminated. News sentiment can be a viable solution to address some of these issues, but existing tools accessible to investors (Google Trends, social media monitoring tools, and news sentiment analysis tools) have not yet fully formed into a one-stop shop for monitoring, analyzing, and acting on finance-specific news… until now.

Babbl is building the first all-encompassing news-monitoring and sentiment-tracking website for financial news coverage. Our goal is to fill the void of existing solutions in order to solve the shortcomings of the news landscape, all on one easy-to-use platform. Our website does this via the following:

Aggregation

Aggregating all news coverage from across the web (news outlets, blogs, newsletters, social media) to get the full picture of conversation about stocks, topics pertaining to stocks, and the market at large.

Filtering

Filtering through the mass of articles and excluding overly click-baity or spammy content, and upweighting content that’s most relevant to the stock market, via keyword detection.

Sentiment

Calculating the sentiment about stocks, topics, and the market at large via finance-specific natural language processing

Alerts

Easy to build alerts (via email or DM) so users can be notified when a particular stock experiences a large increase in news volume or drastic change in average sentiment.

Our platform is currently in beta, and there is still progress to be made. More advanced features to come might include sentiment vs. price correlation and backtesting, scanners to track the sentiment about market-relevant people (ex: Elon Musk) and topics (ex: inflation, interest rates), and granular stock event detection (ex: earnings reports, product releases, corporate action, etc.). Down the road, we intend to also expand coverage to include non-US equities and eventually cryptocurrencies.

Where do I sign up?

You can get started using our platform today for free by creating an account on our website. While we’re still in beta, your feedback will ultimately help us design and prioritize tools that aremost useful for you on your stock market research journey. Together, we can conquer market news and make finding actionable insight as easy as 1, 2, 3…

Thanks for reading!

Ramsey, Babbl cofounder & CEO

A new way to track market mood

4.9 Rating based reviews on

"Babbl has been a lifesaver for me. Even the beta version has made a huge difference in my news research process. What used to take me hours per day now takes minutes thanks to their simple news sentiment and watch lists. Something I'd recommend to any investor who feels like they spend too much time keeping an eye on Twitter and news"

Jake Kohl

DIY Investor