Personally I do not nod back because I think that is some kind of homosexual communication.
It is left over from the almost forgotten courtesy of tipping your hat.
[You tip your hat to this lady, son! And when I did, all that hair fell out from underneath...]
The natural motion of tipping a hat involves nodding the head while reaching for the hat.
When hats became passé, the nod was the disconcerted leftover compulsion.