The fear and greed index of the stock market is currently signaling ‘greed’. Last week, the index stood at the extreme greed level. The change in the index can be attributed to a recent increase of 25bps in the FOMC meeting, which led to a slight pullback in the markets.
The fear & greed index comprises seven indicators that monitor different sectors of the economy. This is an extremely valuable tool as it helps understand the current market sentiment and allows investors to decide on their next move.
As mentioned earlier, The CNN fear and greed index showed extreme greed last week, which usually precedes a market correction. At the last FOMC meeting, the rates were raised by 25bps, which caused a slight correction in both S&P500 and Nasdaq 100 indices.
These indices are currently down 1.5% and 2.4%, respectively, from their last week’s highs. Due to the ongoing pullback in the market, the index has dropped from “extreme greed” to “greed”. This means that markets are comparatively less greedy than a week ago.
As I mentioned, the Fear and Greed index comprises seven indicators, of which three are still showing signs of extreme greed in the market. The market momentum, which compares the S&P500 with its 125-day moving average, is pointing towards extreme greed in the market.
Three indicators do not show signs of greediness in the market. MARKET VOLATILITY and SAFE HAVEN DEMAND show signs of neutrality. However, JUNK BOND DEMAND indicates that there is fear in the market, meaning that investors are afraid to buy bonds rated below investment grade.
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This post was last modified on Aug 03, 2023, 16:41 BST 16:41