Market analysts are constantly on the lookout for any statistic, however tenuous the connection, that might predict how the economy will fare. But Nicholas Colas, chief marketing strategist at the BNY ConvergEx Group, may well have stumbled onto the most unusual economic indicator: what people are reading when equity markets are bullish or bearish.
In a briefing sent out to clients on June 24, Colas turned to the archives of the New York Times bestseller lists and cross-referenced them with 12 turning points -- six highs and six lows -- in the S&P 500 stock index from 1973 to the present.
What he found was that "there are some noticeable correlations between high and low periods for equities (and the economy) and what kinds of books, specifically nonfiction, sit on the NYT bestsellers list."
Self-Help for Lean Economic Times
When times are bad, readers increasingly turn to inspirational/self-help books. There were seven such books at a particularly low point in August 1982, while a market high exactly five years later, in 1987, saw only two such books hit the charts. As Colas points out, "That makes sense -- lean economic times cause a lot of stress, and readers are looking for advice on how to deal with their problems."
When the economy is doing well, however, readers go more for history and biography. There were 12 such books on the list during a market high in 2000, but just five at a low point in 1994.
"Contrary to popular belief, people do not seem to wax nostalgic during low points in the economy," Colas writes. "When times are good, fully half of the 15-book bestsellers list is in this category. But when things have been running off the rails for a while and the market has been performing poorly, readers seem to focus on the 'here and now' of self help and political analysis."
June 23 List Indicates Bullish Outlook
So how does this particular correlation play out now? Colas looks to the presence of three inspirational/self-help titles on the June 23, 2010, list as an indicator of a brewing market low: "A bullish sign if you are inclined to look for them, but a bit worrisome for us given the market's run from the March 2009 lows."
In an interview with DailyFinance, Colas explained some of his methodology of how he correlated the bestseller lists with the state of the economy. "As a lifelong New Yorker, I have seen decades of these lists and feel a particular connection to them," Colas said, adding that he picked the S&P 500 and the New York Times bestseller lists in particular because of brand recognition among professional investors and readers, respectively.
As to why he stuck with the nonfiction side, "I thought it would be harder to interpret if a fictional book was of a certain category (historical, humor, etc.). Nonfiction lends itself better to categorization." And 1973 was a "convenient cutoff date," Colas said, explaining that "the market became more volatile in the early 1970s with the first oil shock, so the ups and downs are very easy to visualize."
Analytical Food for Thought
Colas readily acknowledged, both in the briefing note and a follow-up interview, that the analysis is meant more as "food for thought" than an absolute indicator of economic reality. For one thing, the New York Times split the nonfiction bestseller list in 1984 such that most of the inspirational/self-help books Colas looks to as a sign of a bear market now appear on a separate "Hardcover Advice" list.
For another, there were points in time when the market did badly, but history and biography dominated the nonfiction list. And Colas's blithe conclusion that "if you want to make [it] big as a nonfiction writer, better stick to history and biography" clashes with the current downturn in both advances and sales for writers who do, in fact, stick to those categories.
But it shouldn't come as a surprise that Colas's briefing note has attracted interest because, as he said, "people like the idea that the markets are connected to the rest of our lives and the economy."
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