How to Use Pop Music to Forecast the Stock Market

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Joe Weisenthal (0:26)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:31)

And I'm Tracy Alloway.

Joe Weisenthal (0:33)

So Tracy, I don't think I've ever asked you this, but do you like the Beatles?

Tracy Alloway (0:37)

Uh, 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.

Joe Weisenthal (0:47)

I have met people who say they think the Beatles are bad, but every single one of them is either a troll or a mindless contrarian, and I don't like those kind of people.

Tracy Alloway (0:58)

What do you think about the Beatles?

Joe Weisenthal (1:00)

I actually think the Beatles are underrated, and 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 a topic for probably another episode.

Tracy Alloway (1:19)

But the topic for this episode is the Beatles, or music in general, or what are we going to be discussing?

Joe Weisenthal (1:27)

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?

Tracy Alloway (1:40)

You know, I have at one time or another seen 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?

Joe Weisenthal (1:53)

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.

Tracy Alloway (2:15)

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?

Right.

Joe Weisenthal (2:38)

Or is it all, I mean, the third possibility is that there's no connection at all, and people are just drawing random lines on charts. But anyway, I'm still intrigued, and there's this guy, Robert Prechter, who founded something called the Socionomics Institute, that examines this in depth, this connection between cultural mood and the market.

And we are going to be talking to someone who works at the Socionomics Institute to really dive into these connections.

Tracy Alloway (3:13)

And we're going to listen to some Beatles songs, right?

Joe Weisenthal (3:15)

And that's really what we're doing here. We're going to listen to some Beatles songs and talk about some charts. So it should be sort of a dream episode.

Tracy Alloway (3:22)

I'm excited.

Joe Weisenthal (3:33)

Matt Lampert, thank you very much for joining us today.

Matt Lampert (3:36)

It's a pleasure to be here.

Joe Weisenthal (3:38)

So, Matt, first of all, just tell us, what is the Socionomics Institute? What do you do, who founded it, and what do you study?

Matt Lampert (3:48)

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. Well, what we do in Socionomics 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 Prechter. He was a Wall Street guy. He worked at Merrill Lynch for many years as a technical market analyst, and he was successful, and he decided he would start his own firm.