How to Use Pop Music to Forecast the Stock Market

I feel like there's only one way to answer that question, right, Like you would be worried if someone said that they didn't like the Beatles. I have met people who say they think the Beatles are bad, but every single one of them is one is either a troll or a mindless contrarian. And I don't like those kind of people. What do you think about the Beatles? I actually think the Beatles are underrated, and it's sort of I have this.

I have this belief that the best things in life, like in any category, are always underrated, Like I think Michael Jordan and Muhammad Ali are underrated, for example. But that's the way that that that we could That's a topic for probably another episode. But the topic for this episode is, um, the Beatles or music in general or you know, what are we going to be discussing it

kind of is the Beatles? Did you know that you know if you look at the history of the stock market, that certain peaks and troughs in the market actually line up with Beatles songs. Uh? You know, I have at one time or another scene that chart, and I've always been very intrigued by it. But of course, I guess when you see a chart like that, the thing that springs to mind is correlation versus causation, right, right, yes, exactly.

But you know, there are people who think that we can look at things like what kind of songs are popular at any given time, or what kind of fashions or what kind of other cultural things are going on, and then use that to tell us something about societal mood, and then use that information to make calls on the market. I mean that sounds really fascinating to me, and I can see how you could use pop culture to gauge

maybe optimism and the strength of the economy. But again, like I suppose, the big issue is whether or not you get into a chicken and egg situation, right like, is the mood following on from the economy or is the economy driving the mood. It's fascinating. I mean the third possibility is that there's no connection at all and people are just drawing random lines on charge. But anyway,

I'm still intrigued. And there's this guy, Robert Prector, who founded something called the Socioomics Institute that examines this in depth, this connection between cultural mood day and UH and the market. And we are going to be talking to someone who works at the Sociogonomics Institute to really dive into these connections UH. And we're gonna listen to some Beatles songs, right, and that's really what we're doing here. We're gonna listen to some Beatles songs and talk about some charts. So

it should sort of a dream episode. I'm excited. Matt Lampard, thank you very much for joining us today. That's a pleasure to be here. So Matt, first of all, just tell us what is the Sociogomics Institute, what do you do, who founded it, and what do you study At the institute. We study the relationship between social mood and social events. When we tend to think about mood and events. The common perception out there is that events shape our mood.

So we'll read things in the newspaper, like a new jobs report came out and that made consumers more optimistic, or a politician gives a rousing, encouraging address and perhaps that will lift investor confidence. What we do in sociomics is we look at that relationship the other way around.

So instead of starting with the events, we start with the mood and we look at how social mood shapes the tenor and character of social events, because those events have to come from somewhere, and they come from people, people who have feelings. So we find that if you look at how people are feeling, then you've got a leg up on anticipating their actions. And this whole perspective

came about through a market analyst named Robert Prector. He was a Wall Street guy, worked at Meryl Lynch for many years as a technical market analyst, and he was successful, and he he decided he would start his own firm, and the emphasis of the firm started being fairly market focused.

But as he went on in his career, he realized there were all these interesting connections between what was going on in the stock market, and what was going on in popular culture with music, movies, politics, all sorts of stuff. And he started to cultivate a theory that linked those two things together. And his proposal was that was a common social psychology, a common social mood that was driving

activity in all of these different domains. So when investors were feeling more optimistic, they were inclined a bit of stock prices, But when voters were inclined to feel optimistic, they were inclined to reelect incumbents. And when teenagers were feeling optimistic, they listened to happy, upbeat pop music, and then the opposite when that mood turned negative. So, Matt tell us, how do you actually go about gauging um

the public mood? You mentioned pop culture there, but I imagine there's some wiggle room for interpretation, right, we look at all sorts of indicators. Prector argues that the stock market is really the best indicator of social mood because not only is it the area where people can express their levels of optimism and pessimism, but they can do

it quite quickly. It just takes a few moments to trade a stock, a few clicks of amounts, or a call to a broker, and we've got stock data going back hundreds of years, so we can back test the theory and we can also track mood in real time. But we definitely look at a number of other indicators as well. There's survey data out there on consumer confidence, economic confidence. We look at, as you've mentioned, pop culture indicators,

what music is popular, what movies are popular. But we really find that the stock market is the best indicator of mood, and we use some of these other indicators to confirm or deny the message of the stock market

seems to be giving us. Now, in the intro, we mentioned the Beatles, and there's this chart that I've seen floating around the Internet for a long time titled Major Events in the Beatles Career Tracks Social Mood, and it's a chart from of the DOWD Jones from nineteen fifty six to nineteen seventy and at various times in uh these fourteen years, it's annotated with key events in the history of the Beatles. So, for example, there's a market market peak right around when Rubber Soul came out. It

spent six weeks at number one. What's the connection there? So then the market immediately dropped. So let's let's put this social mood theory into practice. Tell us something about what was on rubber soul, and then tell us what it how it might have indicated a top in the market. The study that you're talking about is one that Robert Pructor did. It was a case study of the Beatles where he tracked their career and found it they were a group that that aligned quite well with the with

the trends in the market. And if you look at their history, look at the Beatlemania period basically goes from nineteen sixty two to ninete in sixties six, This is when they were performing in front of stadiums with screaming fans. The whole Beatlemania phenomenon was going on. And what happened, Like you said, in nineteen sixty six, this phenomenon tops out. It's the top of the market right around the same time.

And practice argument is that what's happening here is that social mood is becoming incredibly optimistic here in the mid sixties and investors are expressing that optimism by bidding stock market prices stock prices higher and higher, and teenagers are expressing it by going out and screaming and buying Beatles

records and singing along and this sort of thing. And after that top in the market in nineteen sixties six, what we see is a change in social mood, a change in the psychology, and with that change in psychology came a change in behavior. So the Beatles decide that they're going to stop live touring. They're gonna stay active in the studio, but they retire from doing the live shows. There's internal tumult within the group. There was even death threats,

this sort of thing. The market eventually rallies, they get more active in the studio. They decide that they're gonna record and put out another album. But the bear market was already in play here. And in April of nineteen seventies, that bear market really started to unfold. Paul announced that he was leaving the group, and then the band released their last studio album early the following month, within days of the Kent State shooting. It's also the month of

a of a low in the market. So we see this change in psychology showing up throughout the social experience. That's showing up in the market, it showing up in the music, and it's showing up in the character of political and social events as well. But here's what I

don't get about the specific example. So if you say that the peak of Beatlemania coincided with the top of the stock market stock market and a lot of teenagers were really excited about this new rock group and they were singing along, I mean there were a lot of people around who didn't like the Beatles and who saw it as like a sign of the deterioration of the

old world order um that they were familiar with. So how do you kind of I mean, how do you gauge, like who likes what and which is more important for overall mood. We really look at what's popular. The Beatles are one of the most popular music acts in the history of the planet. And sure, of course there's always a mix, right there are people who who like certain things and people who don't like other things. But they're

definitely a certainly a very very popular group. But it's important to keep in mind too that of course there's a mix of opinions, beliefs, actions, uh feelings in society at all times. Social moods always in flux, and within that flux, there's always a mix going on. But the question we look at. What we look at is what's the quantity and intensity of positive expressions relative to negative expressions. So things are never uniformly positive, they're never uniformly negative.

There's always a mix, but sometimes the balance is shifted far more towards the positive side or far more towards the negative side. And that's really where you can get a better idea of what's going on in the mood trend continuing on the Beatles, and then we could sort

of move off it. I noticed in the late sixties that the White Album was released, That's one of my favorite albums, and that sort of that was a key peak in the market well, and there was also a change in the tone of the music around the around

this time as well. They started becoming more introspective, the songwriting became more complex, And one of practice observations is that in negative mood periods, one of the manifestations that we see, at least in the music world is uh, not only a harder edged sound to it, but also more sophisticated lyrics, more sophisticated songwriting. And as the Beatles grew war on, is there a song that you think from that period that really sort of captures this new

style of introspective, slightly darker songwriting of the Beatles. It one could listen to that would have foreshadowed the coming sell off in the market appears right after that the dow was it around one thousand fell as uh got around six hundred, so fairly significant sell off in the TAO over the next couple of years. Is there a song or something that sort of you think really encapsulates this mood change. Well, there's definitely a change in the

in the tone of the music. For example, if you look at the Beatles early stuff, it's energetic, they're singing you know, she loves you, Yeah, yeah, yeah, and then by the end they're singing, Hey Jude, and it's you know, it's it's slower, it's dorker, Hey, don't make it bad. But really, what we're doing here is what we're trying to look at, is this change in psychology that's going on. And we're not necessarily using the Beatles as a cell

signal or a by signal or something like that. We're really just trying to say this psychology is showing up and a lot of different areas of social expression in music. Music is one of those. And now let's take a break for a word from our sponsor. But first we want to take a moment to let you know about something new from Bloomberg. It's really cool. I'm not joking.

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dot com. Slash lends but knowledge to work and grow your business with c i T from transportation to healthcare to manufacturing. C i T offers commercial lending, leasing, and treasury management services for small and middle market businesses. Learn more at c i T dot com. Put Knowledge to work, and we're back. We were just talking about the Beatles and whether or not you can sort of trace social mood through the ups and downs of the Beatles career

and whether that has an impact on wider markets. Uh So, Matt, I wanted to fast forward about forty years. Let's go straight to now. When you look at the social mood at the moment, what do you see and what particular things are you looking at to gauge it? Right? So mood right now? Is is is that a really interesting juncture. So we've got in the US, you've got the markets

near all time highs. There's been all sorts of things written about how how calm the markets are and how voll I mean, we've heard this one a million times over the past a month or so. Uh So, you've got this this complacency that's going on at least in the US. But if you turn around and you look elsewhere in the globe, let's say you go over to Europe, what you see is a pretty different picture. The Eurostocks fifty index topped in two thousand and on that basis,

the eurostocks has been in a bear market ever since. Now, some national indexes have rallied to new all time highs, or if not, have rallied strongly within that trend of late. But you look at the tenor of character and actions in Europe and they're so different. You've got all kinds of political fracturing going on within the EU, You've got

breakdowns in tension. I mean, this was supposed to be a glorious alliance of all these countries that have fought for thousands of years with each other, and now that they tried get together in form a a union, well, that's a manifestation in itself of of of a large degree positive mood trend. And as that moods turned negative, we've seen the social manifestations of that turn negative as well. And we've gotten a flavor of that in the US.

Certainly there's there's all kinds of polarization to it, but certainly, uh, not quite at the level of Europe just yet. When you look at cultural things in the US, is there anything equivalent that you're tracking, uh sort of musically film stuff artistically that sort of might give you a sense of where the mood is in the US. Are signs that it may be turning in one direction or another. One of the things that practice looked at in the movie space in particular is is trends and Disney movies

versus trends and horror movies. So the heyday of Disney in the mid nineteen sixties, uh, where they released some of their classic films, and of course it's started with White Well, but were then uh, you know this is this is a great positive mood stuff, upbeat, family fair. There's a Disney renaissance in the late eighties and the nineties where again they just had hit after hit after hit, and then that got interrupted. In the early two thousands,

horror movies came back in vogue. You had the saw films, the torture movies, and these films were a call back to films that were popular in the bear market of the sixties and seventies, the Texas Chainsaw Massacre, and then just just genuinely scary films like The Exorcist, which themselves were called backs to films that are popular in in the early nineteen thirties during the depression. Dracula, Frankenstein, this sort of thing. So right now, we we've seen another

hit from Disney. They had frozen fairly recently in the past few years. But then, but then, of course, the Beauty and the Beast remake was a huge hit. They had a Cinderella remake, there was a huge hit. The Jungle Book remake was a huge hit. So those movies are still popular, and we think that the social mood has a lot to do with that. But if you're a horror movie fan, just hold your breath. It's okay. When mood turns negative. There should be some more groundbreaking

horror stuff on the way for you. I mean you you're mentioning Disney movies. Um, the comeback of Disney right now. You mentioned earlier that the stock market was probably the best expression of current mood. So if you look at the US market, which seems to be reaching new highs um every week, now, how do you square that with

what's been going on in politics? Because when we look at the US elections, UM and a lot of the sort of populist political issues happening right now, it seems like there is a lot of anger out there, and there is a lot of uncertainty. There's definitely a lot of political polarization going on in the US. And in fact, my colleague here at the Institute, Robert Fulsome, did a

study called y Trump Why Now. It came out in March of during the primaries, and one of the interesting things about the primaries is that the candidates on the Republican side, at least initially didn't take Trump very seriously. Jeb Bush spent all kinds of money attacking the other challengers and basically figured here this Trump guile peter out on his own. But Robert looked at the market and reached a different conclusion. Now, what we like to do with the market is we like to look at at

a nominal terms. We also like to look at it in real money terms. And if you look at the market in real terms, that you find is that the all time high in the US was and we've been in a large degree bear market ever since. Now since index has been rallying, we think it's a bear market rally.

But once you start to see, okay, well, we've got nominal markets at all time high as you've got the market in real terms, in this bear market rally, it makes sense that you'd still see a little bit more of a mix, and the polarization that we saw in the in the election certainly makes sense in that context. And we think that if we see the nominal indexes joining the real money indexes on the downside, that's when

what seems like intense polarization now will get even more. So. Yeah, it sort of reminds me of one of my favorite charts, which is just the the Dow Jones divided by the price of gold, because it's sort of to me, is like a measure of like, you know, stocks are, there's a sort of investment in human capital, cooperation, society progressing, and gold is a rock or a metal or something

that has no real productive value. And what you see is sort of as you say, in two thousand, that ratio hit incredible heights and we're still not anywhere in that declined as you said through two thousand eleven was when that ratio hit it's low, and we're still not anywhere near the old highs in terms of uh, you know, that ratio signaling at least you know, relative to about you know, fifteen or twenty years ago. People are still

really into rocks relative to humans. That's right. It's interesting to look at markets priced and gold. We we like to look at Dow Gold for sure. In my colleague Allen Hall has just been doing some work recently where he's looking at lots of other national stock indexes priced

in gold. And what you find when you do that is that the rally in the U S sinceleven is one of the longer rallies when you look at these gold denominated indexes globally, a market like Russia has seen its nominally in real money indexes falling in tandem since about two thousand eight. And when you look at the social manifestations that are going on in Russia, suddenly it starts to make a little bit more sense. I mean, back in two thousand seven, Russia was the darling of

of of investors. Vladimir Putin was Times Man of the Year. They were part of this assortment of brick countries along with Brazil, Indya and China, where there was allegedly huge investment opportunities out there. And in that environment, Alan said, look, there's so much optimism surrounding Russia right now. This is very likely going to be a peak in the Russian markets, and use the Elliot wave model to to verify that analysis, and said, folks, we've got a major bear market coming

in Russian. When we see that that change in psychology manifest in the market, that's when it's definitely time to be on the lookout for a military resurgence from from that country. And after the market declined, there was the invasion of Ukraine and and we've seen just just this resurgence and militarism coming coming from Russian And once you understand the psychology over there in the context of this long term negative mood trend, it starts to make make

a lot more sense. Matt. That kind of reminds me. I wanted to ask how much um analysis you do on non US, non European countries and how you actually do that analysis, Like would you gauge social mood in an emerging market like India or Vietnam And how does gathering that information differ from doing it in a developed market.

Sure well, with the wave of globalization that that took hold from the eighties and nineties and into the early two thousand, we've got market index is just just about all over the world, and we have analysts who cover those markets and also look at them through a socionomic lens to look at the cultural manifestations in those countries. My colleague Mark Galaschowski does a lot of work in Asia and the Middle East, looking at India, Pakistan and

then China, Japan. This sort of thing, and the method is is similar to what we do in the U S where you take the stock index in the local country, use that as an indicator of mood, and then you use it as a as a benchmark to forecast and contextualize social events that are going on over there. Uh. Now we have to wrap up soon. But I think

you know. The part that sort of I'm still struggling with is you know, and I'm sure you've heard this people questioned this before, which is that you know, you can see a market move, you can see a move in the stock mark it and then go back and construct an argument for why the mood was good. So we say, okay, uh, the stock market has been doing really well for the last several years. And look at

Disney movies. There are a lot more Disney movies than there were horror movies, and so this is a sign that people are optimistic or you're saying, uh, the US elected Trump and you're like, but we're you know, we're still kind of in a long term bear market in real terms, what do you say to people who say that this kind of analysis is essentially retrospective fitting of events to markets and that you can sort of ex post facto come up with any uh, any mood characterization

that you'd like to get it to work. Well, I think having some objective criteria for your analysis goes a long way in doing that. But the other the other thing that we do is we issue real time forecasts all the time. We've got a monthly publication called the Socioonomists where every month we're issuing real time forecast and analysis of what's happening right now and looking ahead into

the future. So I think you you just do your best to forecast in real time, and then when you look at the past, you just try to be as objective as you can, lay down some parameters and see where the where the data. Thank you, Matt Lampert of the Sociogomics Institute. Really appreciate you coming on fascinating work that you do. Thank you so much. So, Tracy, are you going to start scanning the weekly billboard charts and box office receipts to gain some insight on where the

market's going. I was kind of thinking, like, if if you think that the Beatles were a good way of gauging social mood because they were something around which a large proportion of people coalesced, what would be the equivalent today? And the only thing I could think of, um was

either Taylor Swift or maybe One Direction or Beyonce. I don't know, well I would say, yeah, I was gonna say, Taylor Swift and Beyonce are probably the only two musicians today that have the sort of like megapower, mega influence, mega fan base that might be able to tell you anything about where the market's going. So maybe that's a good a good reason to listen to both of them more closely and see how their songwriting styles evolved. Right,

It is interesting. I think Taylor Swift like sort of switched from h from country to pop fairly around the time the market rebounded, So maybe there is something there. Yeah, but here's the thing I mean, I was kind of talking about it with the Beatles, but like, does everyone love Taylor swift know, like, is it a pretty big movement? I just I just don't know how much signal you

can actually get UM from Taylor's it. No, And I thought that was a really good question in general, that yeah, sure the Beatles are popular, but other people probably at the time, So it is the you know, the collapse of Western civilization that the kids were listening to rock and roll. So I think it's intriguing stuff. I love looking at their charts. They fascinate me. Um, I'm not sure I would, you know, necessarily commit my life savings

to strategies based on it. But you know, look, I mean I consider myself an open minded person, so I won't dismiss it entirely. Look, I think most people would say the more data that you can get, UM, the more informed you are as an investor. So there, I feel like there is something there with social mood. Absolutely, And you know, one of our previous guests on the show, UM, Peter Atwater from Financial Insights UH is also very into it,

and he does it very well. And if you think about the economy and the fact that a large portion of the economy is driven by people's confidence and their belief in their ability to invest. Then there is an obvious link. I just find it difficult to kind of tease it out because ultimately you're dealing with human behavior and emotions and it can be tricky. Still, it's a good excuse to listen to more music. Yeah, okay, let's go do that. All right, sounds good. This has been

another episode of the Odd LODs podcast. I'm Joseph Why Isn't There? You can follow me on Twitter at the Stalwart and I'm Tracy Alloway. I'm on Twitter at Tracy Alloway. Thanks for listening. Put knowledge to work and grow your business with c i T from transportation to healthcare to manufacturing. C i T offers commercial lending, leasing, and treasury management services for small and middle market businesses. Learn more at c i T dot com. Put Knowledge to Work