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The Drumbeat of Negativity

The Drumbeat of Negativity

October 27, 2023

For a musical group, the drummer has a central role in establishing the tempo, rhythm and direction of the music.  In essence they form the context.  Tyler, a jazz drummer at the University of Miami puts it this way, “The drums are unique in that they can dictate where the music is going.  If the drummer plays soft, the rest of the band follows.”

In the markets, the news often acts as our drummer.  There are data reports that come out with a certain cadence, not unlike an underlying drumbeat to establish the tempo of the music.  But just like a drummer and band will add flourishes or embellishments to accentuate the flow of a piece, the collage of data points allows each investor the opportunity to build their own theme or melody to interpret how they play together.  In other words, we all get the chance to form our own song, or story, to explain the data.

Underlying all the current data, we also know that the economy and markets tend to move in broad cycles, following their own internal rhythm.  As the data comes out, it is either going to reinforce or counteract the prevailing rhythm.  When the data and our interpretation of it reinforces the current cycle/rhythm, the market moves in concert to a crescendo or decrescendo.  That feels a lot like what is happening now.  We are fairly late in the normal economic cycle and on top of that we’ve had a constant feed of fairly negative news between world events, corporate earnings, continued inflation, disruptions in Washington DC and on and on.  This drumbeat of negativity on top of a normal cyclical pattern is feeding on itself into a decrescendo which shows itself as a seemingly unending period of down days in the market.

An important thing to remember in music is that the tempo affects how the listener perceives the song.  Faster tempos tend to feel more energetic and intense while a slower tempo tends to feel more somber.  “Musicians use tempo to convey certain emotions.  If I feel like the audience could use some more energy, I might count off a song a few clicks faster than usual or call a different song all together.” as Tyler explains it. 

In markets, it is no different, our mood will reflect the song currently being played.  But remember that for investors, our mood should be a reverse indicator for our actions.  When we are feeling low, we should be thinking about opportunities and when we are feeling excited, perhaps it is time to slow down.  Thinking long-term and keeping that same perspective lets us see the current section of the market “song” for what it is and helps us #InvestWithAPlan.

Photo Credit: drums by Akash Kataruka, under CC BY-ND 2.0 license