by Jason Bodner

May 7, 2024

Music is powerful.

Think of how many times in your life, a great song came into your mind, and you were instantly transported to a memory, or a mood, or even an imaginary place.

For me, there’s always music on, and it’s not just in the air. It’s in my head; I can’t turn it off. I dream music. In fact, I need music playing while I work, otherwise I get distracted by the music inside my head.

As far as afflictions go, it’s one I welcome, so, as I write this, my Spotify playlist is spinning. It picks new stuff I’ve never heard based on what I’ve been listening to. I highly recommend it if you’ve never tried it.

I see markets the same way I see music, like notes on a page making sense. To the non-musician, notes on a page can look like chaotic meaningless hieroglyphs, random dots and lines. But to those who can decipher them, a sheet of music is code for what can come out as sublime mood-altering stuff.

Market movements also can also look like gobbledygook. To the informed however, there’s decipherable code revealing pictures not evident to the untrained. Patterns are everywhere.

Illustrating the point, I found two recent studies showing a strong correlation between what music people are listening to and market performance. Here is an abstract of a 2012 study by Phillip Maymin:

Popular music may presage market conditions because people contemplating complex future economic behavior prefer simpler music, and vice versa. In comparing the annual average beat variance of the songs in the U.S. Billboard Top 100 since its inception in 1958 through 2007 to the standard deviation of returns of the S&P 500 for the same or the subsequent year, a significant negative correlation is observed. Furthermore, the beat variance appears able to predict future market volatility, producing 2.5 volatility points of profit per year on average. 


And this is from the Harvard Business Review:

Alex Edmans of London Business School and three coauthors gathered data on the positivity of songs that people in 40 nations listened to on Spotify. The researchers then compared that data with the performance of each country’s national stock market over the same period. They wanted to see if there was a correlation between mood, as reflected by the music played, and financial returns. There was. The conclusion: When people listen to happy songs, the market outperforms.

Historically, markets outperform from November to April, so I guess investors were listening to some crazy happy music in winter. Then tax time rolled around and killed everyone’s mood. It would be interesting to see what’s trending in May, because it seems like the market stayed positive in early May.

First on this week’s hit parade, I’ll discuss the Fed’s influence on markets last week, and then we will look at some of the market’s latest sheet music to tell us what might be happening next…

The Fed’s Music Maestro Takes to the Podium on May Day

Naturally, there was a lot of cheer in stocks in the first few days of May, coming on the heels of the Fed meeting. I listened to Jerome Powell’s statement and subsequent Q&A period. Here’s how I interpreted it:

  • The Target rate remains unchanged at 5.25 to 5.5%. The Fed is continuing to reduce securities holdings. The economy made progress, and inflation eased in the past month, with the PCE (Personal Consumption Expenditures) inflation index at 2.7%. Consumer spending is strong, as is the labor market.
  • The short-term is less certain, but long-term inflation looks better. Treasuries purchases are slowing from $60 billion to $25 billion per month in June. In short, the Fed is patient, and the statement was dovish.

The Q&A was even more dovish, with the Fed chair making these bullish points:

  • The job market is getting closer to pre-pandemic levels.
  • Hikes are unlikely; the question is how long will the Fed stay restrictive?
  • Cuts are coming if inflation continues to trend toward 2%.
  • Housing was a bit sticky, but that data lags and takes a long time to work through the system.
  • Stagflation isn’t a risk. Usually that term implies near-double-digit inflation and jobless rates.
  • The Fed doesn’t get involved in politics near the election, so I say they make two rate cuts before then.
  • Other countries are cutting because they have no growth and inflation. We have growth with inflation.

Now, if we decipher the market code, we can get a clearer picture: Reading between the lines, Powell’s comments were positive, so stocks continued cheering on Friday, despite a weak jobs report, since that signals a higher probability of a rate cut. The sooner we get that cut, the sooner the rally will accelerate.

First-quarter earnings are working. As of May 3, 80% of S&P 500 companies have reported and 77% reported earnings above estimates, which is above the 10-year average of 74%, and 61% have beaten revenue estimates, which is below the 10-year average of 64%, according to FactSet Earnings Insights.

Earnings Table 1

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It’s clear the market doesn’t like the idea of higher rates for longer. In April, those fears resurfaced and were a perfect excuse to trigger profit taking. The SPY fell -5% from its March 27th peak to its April 19th trough. This pressured the Big Money Index (BMI) to fall over 40 points from its overbought peak in December. Looking at the code, historically, when this happens it means huge positive forward returns:


Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Reading the 6-12 month returns, I wonder if anyone is starting to hum some happy tunes now.

It may be premature, but early indications say that selling slowed and buying is starting up again:


Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

While this is encouraging, we are still seeing sector leadership going topsy-turvy. Energy, Financials, Industrials, and Materials lead, while Technology and Discretionary – both growth-leading sectors – remain stuck in the middle or lower. What’s really interesting is that Utilities, like a phoenix from the ashes, rose from the basement to the upper half – in 5th place (out of 11) in just a few weeks:


Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

One possible narrative for why the sudden interest in Utilities is the sudden spike in demand for power as we need energy to power the AI revolution. Large companies like META are reporting big spends in AI.


Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Whatever it is, Big Money suddenly likes stocks again. They even like Utilities, even though the current fundamentals for the group are in the middle. Looking at Utilities averaged together, this is what we see:

  • Map Score 46.3
  • Technical Score 55.8
  • Fundamental Score 39.6

This points to a technical rally as opposed to a quality run. Rotations out of risk into “safety” might be what is driving the sector higher – or perhaps we will see future earnings and sales surging in the sector?

Time will tell. For now, the music of the market is more upbeat.

“Where words fail, music speaks.” – Hans Christian Andersen

Navellier & Associates, some accounts own Meta Platforms Inc Class A (META).  Jason Bodner does not personally own Meta Platforms Inc Class A (META) personally.

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Jason Bodner

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

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