The Beat Goes On

Written by Paul Siluch
April 23^rd, 2024

Music is always changing and the changes are unpredictable.

• Billy Sheehan

Much of cycle theory is explained by the last generation dying out, only to be replaced by a younger cohort with no memories of their parent’s mistakes. They then make them all over again.

Music has its cycles too.

In 1930, as markets fell 50% following the Black Monday crash in 1929, the year’s top hits were “Happy Days Are Here Again” and “Puttin’ on the Ritz”, a song about millionaires and Park Avenue.

At the market bottom in 1932? The world heard “Paradise” by Guy Lombardo.

In 1982, at the bottom of the deepest recession since WW2, we danced to “Celebration” by Kool and the Gang.

It goes the other way, too. Higher stock markets push people to want negative lyrics.

In 1927, when the Dow Jones Industrial Average was surging higher, two of the top hits were “My Blue Heaven” and “Singin’ the Blues”, both songs about heartache. At a similar top in 1953, when the post-war economy was red hot and the jobless rate was the lowest in history, the #1 song was “Vaya Con Dios”, a lament about saying goodbye.

Economic analysts are very nerdy about cycles, and they love stuff like this. Why stop at lyrics? Several studies drill even deeper. These find that we don’t just want upbeat lyrics, we want upbeat tempos. In sour economic times, the music beat goes faster, as if we are dancing and tapping our feet to forget our problems.

A University of Connecticut study in 2019 examined thousands of songs in Spotify, the music streaming service, to compare growth in the economy, unemployment, and inflation against song tempo.

“There is an increase in the popularity of upbeat and energetic genres in economic downturns, such as electronic dance music,

while during economic growth periods more soulful, introspective, and thoughtful music tend to dominate the charts.”

• Relationship Between the Type of Music and Economic Conditions

Again, you can see it in popular music charts. In 2008, at the start of the Great Financial Recession, we had dance hits from Katy Perry, Lady Gaga, and Pink dominating the charts. All very fast, very upbeat.

In the stable and steady growth times from 2015 through 2017, it was slow songs from Justin Bieber and Rihanna that dominated.

Harold Zullow analyzed the lyrics of top 40 songs from 1955 to 1989 for “Depressive Characteristics.” He found that sad songs predicted depressive media one to two years later, as well as slower personal spending and economic growth in the larger economy.

It is as if we knew what was coming. So, if you feel like listening to a sad song, just stop. Right now.

If music cycles alongside the economy, is there any way these trends can be used as forecasting tools? Economists are always looking for crystal balls to solve the riddle of the rises and falls in the economy. Here’s the unemployment rate, the heartbeat of the economic cycle. Is there a way to predict this?

St. Louis Federal Reserve

Of course, somebody studied this. We study everything! Does using music as a leading indicator work? The answer is maybe.

A large paper went beyond lyrics and tempo and focused on beat variance, or how complex the rhythm is in song styles. Think of disco as relatively simple compared to classical and progressive rock. Pieces from classical music and many rock and roll songs can have a wide variety of tempos from start to finish.

Philip Maymin, an assistant professor of Finance and Risk Engineering at NYU, looked at over 5,000 songs on the Billboard Top 100 from 1958 through 2007. His goal was to see if the complexity of the music we listened to either coincided with – or predicted – what was about to happen in the stock market.

Why look at how varied and complex a song is? What difference does it make?

It turns out, it is pretty simple. We listen to more complex music when we are bored and simple music when we are concentrating. Studies on drivers showed that those listening to complex music (like classical or jazz) performed less well on driving tests than those listening to simpler music or none at all. Any reception area of an office, where repetitive work happens all day, might have a rock station or talk radio playing. But the dentist? Elevator music. He or she needs to concentrate.

Maybe this is a good test to check on how well your dentist is concentrating…what are they listening to?

Mr. Maymin’s conclusion was that music – what we are listening to now – did predict forward economic conditions. At least a little. When we start to worry about the market, or are in the middle of a decline, we concentrate much more to cope with the complexities before us. Maymin’s study suggested beat variance can predict upcoming market volatility by 2.5% per year. It sounds like a little (and it is) but this can make a difference to sophisticated hedge funds who trade quickly.

“In tumultuous financial times, people prefer steadier music, and in stable financial times, people prefer tumultuous music. This year's popular music seems to predict next year's market volatility.”

- Music and the Market: Song and Stock Volatility

Why dig into music as a market predictor? Maybe because this year is such a complex time! It feels like anything could happen.

Tensions are as high as they have ever been in the Middle East, to put it mildly, with Israel at war with four separate, yet linked, groups. The recent direct attacks by Iran stoke that fire even higher.

Ukraine’s conflict with Russia is now over two years old. Ten if you count back to the original Russian invasion of Crimea. Africa has had more coups in the last year than in decades and, of course, China threatens Taiwan a little more every day. We have an important election in the U.S. this fall and gold is rising like something is on fire.

If I could find a way to guess better about what was coming, I would certainly want to tell you.

So, I went back and listened to the hits of 2023 to try and make an educated guess about the beat variance. This was the year of Taylor Swift at the top of the charts. Her songs are surprisingly complex when it comes to how often she changes the beat.

Complex music means stable economic times, remember? It means things are steady and markets are fine.

To be honest, we must acknowledge that music styles and composition have changed dramatically since 2007, when this study concluded. The advent of streaming services has meant shorter songs that must catch your attention quickly. Artists can’t afford time to experiment – they need an ‘ear hook’ right away.

And, we consume music far more for things like exercise, such as walking, running, and working out. As a runner, I can tell you I want a steady beat when I race. I might trip over my own feet with too many rhythm changes!

Election years like 2024 are typically “up” years for markets after a mid-year decline. We are seeing that now. Also, interest rates are projected to begin declining in many countries over the next few months. Rates cuts in Canada are expected by June, at the latest. These tend to support both stocks and bonds.

Conclusion: If today’s music remains complex, this suggests we are still in a period of steady growth.

We’ll take that as our official guide for the rest of the year.

To finalize this offbeat prediction (pun intended), here are the two songs found to be the most varied and least varied of the 5,002 studied:

Most varied and complex:

Ray Charles 1960 hit “Georgia On My Mind”

https://www.youtube.com/watch?v=ggGzE5KfCio

Least varied and simple:

A-ha's 1985 hit "Take On Me."

https://www.youtube.com/watch?v=djV11Xbc914

Paul Siluch

For

Dividend Value Partners

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