Comparing Stock Charts for Perspective

This was a bad week for the U.S. stock market, but graphics make the news look worse than it is. Students can compare charts to see how truncated axes affect perception.

Yahoo!’s monthly chart has a short range: 41,000 to 44,000 for this monthly line chart. With the red line and shading, the results look awful. Noting the 6.87% drop is helpful—it’s not great but not devastating either. For the 62% of Americans (varying largely by demographic group) who own stock in some way, their portfolios are unlikely to be invested 100% in DJIA stock, so their personal losses are probably smaller.

This one year chart, also Yahoo!’s, shows a more complete view of the market. Over a year, stocks were still in positive territory—green(!)—and the recent dip is in clearer perspective. Not that short-term investors and perhaps retirees shouldn’t be concerned, and we might be headed into a recession, but this chart recognizes the extraordinary gains in the past year as well as the recent losses.

Students can find longer-term charts to see an even fuller picture of U.S. stock market returns. They might also find, or need to create, charts with a Y-axis starting at 0.

As always, the data visualization depends on the audience and purpose. If your audience is television viewers, and your purpose is to engender fear, then short time frames and truncated axes do the trick. If you’re a financial advisor, and your audience is a client who is a long-term investor with a balanced portfolio, you would probably not show these charts at all and instead focus on their portfolio returns over time.