It has been said that stock prices rise and fall according to market expectations.
If corporate earnings results are disappointing, the negative news will cause stock prices to fall, and if earnings results exceed expectations, the good news will encourage the market to boost stock prices.
But in 1979, an American author by the name of Robert Prechter, hypothesized that news and economic events did not cause the market to move stock prices, but rather the subconscious sentiment of the public called social mood.
Prechter, a well-known advocate and authority of Elliot Wave theory, explained that social mood, which followed a natural course that was independent of external events, was the driving factor that motivated people to act.
For example, an economic recession does not make people cautious as we have always thought, but it is the cautious people, who are moved by social mood, that cause the recession.
A falling stock market does not make people pessimistic, but it is the pessimistic mood of the people that make the stock market fall.
In the same way, a rising stock price does not make an investor confident, but it is the confidence of investors that makes a stock price go up.
Prechter believes that changes in how people feel in general can serve as an advanced market indicator, and we can see this in how people watch movies and listen to music.
When people watch happy movies and listen to upbeat music, a positive social mood can lead to a rising stock market.
But when people start to watch serious movies and listen to slow-tempo songs, social mood can turn negative that results in falling stock prices.
If we apply this theory in our market over the past 10 years, we can see that the long-term rise of the Philippine Stock Exchange index (PSEi) has been characterized by increasing positive social mood.
For example, the highest-grossing films during those years were superhero movies that were produced by Marvel Studios such as “The Avengers,” “Iron Man 3,” “Age of Ultron,” “Captain America: Civil War” and “Infinity War.”
Those happy years also saw the rise of local comedy films that made Vice Ganda one of the most successful pop culture icons.
But in 2018, after the PSEi peaked at 9,708, social mood began to change.
During that year, a serious romantic drama film called “The Hows of Us” starring Kathryn Bernardo and Daniel Padilla became the most successful locally produced movie in history.
The following year, in 2019, “Avengers Endgame,” which broke all box-office records, turned out to be a sad movie because it ended with the death of one of the main characters, Iron Man.
During that year, as negative social mood began to dominate, a heavy drama movie called “Hello, Love, Goodbye” top-billed by the same actress, Bernardo, became the highest grossing local film of all time.
Last Christmas, during the annual Metro Manila Film Fest, it was not the usual comedy films that made it to the top, but a tear-jerking movie called “Miracle in Cell No. 7” starring Aga Muhlach.
Similar situation also happened in pop music. During the bull market years, top upbeat songs such as “Closer” by The Chainsmokers, “Work from Home” by Fifth Harmony and “Shape of You” by Ed Sheeran ruled the airwaves.
But in 2018, when social mood turned negative after the market topped out, local singer Moira dela Torre became the most streamed artist at Spotify with her slow-tempo song “Tagpuan.”
In 2019, OPM music outdone foreign songs at Spotify led by “Kung Di Rin Lang Ikaw,” “Sana” and “Kahit Ayaw Mo Na,” which are all sad and heartbreaking songs.
Looking back, the changing social mood that began to take root in 2018 could have signaled the impending trouble prior to market collapse this year.
In times like this, when things seem to be going from bad to worse, it is not hard to imagine that more people will watch drama and even horror films, as well as listen to gloomy music.
This growing negative social mood can only mean that the worst in the stock market is far from over and we should be prepared. INQHenry Ong is a registered financial planner of RFP Philippines. Stock data and tools provided by First Metro Securities. To learn more about investment planning, attend 86th batch of RFP Program in October 2020. To register, e-mail info@rfp.ph or text at 09176248110