edit: omfg I just realized I have done something very similar 🤦‍♂️
edit part 2: Ok, people. As someone that has done something similar many times, I can help with some info at potential endgames here.
He was being polite and acknowledged what she said. He also didn't want to distract her from her intentions of perceiving his muscles with some boring small talk. If she was interested in talking, she would ask a question.
Even though it was probably pretty distracting for him, he let her do it as an act of kindness. In his head, he thought, "Oh, she'll think I'm nice because I put up with her annoying squeezing during the show. It will also show I feel comfortable around her because I'm letting her touch me."
He was being modest/humble. While she did tell him that he looks attractive, he didn't want to come out looking like a popular pompous asshole that depends on their appearance.
Considering they're at a festival, the noise is probably way too distracting to allow him to hear her well enough to engage. Adding to that, Sensory overload is exhausting. He might also be overwhelmed with the amount of noise, which is preventing him from thinking at 100%.
As someone that probably takes a while to feel comfortable with other people, he might be thinking she is the same way. He's allowing her to make her own judgments of his character at her pace.
It's is also very possible that there was absolutely no end game. He might have thought about what the immediate expected response was, enacted it, and moved on. It wasn't until he got the downtime needed for his brain to catch up and review the events that he realized what he missed.
I mean there's also something to say for not being interested in flirting and wanting to be there for the event? They started touching him without permission. He, or anyone else, would be absolutely justified in not wanting that.