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Fear And Greed Index Shows An Improved Market Sentiment

The Fear and Greed index currently stands at 36 points, which marked an 18-point increase from its October lows. A look at the timeline for the index also shows that market sentiment has been improving since 18th October as US 10-year bond yields retreat from their 15-year peak.

It seems the US Federal Reserve has halted its interest rate hike program as the central bank keeps the 5.25% rate unchanged for the second consecutive FOMC meeting. However, the chairman did warn of a potential rate hike in the future if fails to meet its 2% inflation target.

The month of October has been a rollercoaster for the global financial markets as a new war started in the Middle East. Consequently, oil prices surged from $85 to $93 in a matter of days while the 10-year bond yields also touched 5% which was their highest level since 2007. However, the market seems to have calmed down as these assets are now retreating to their pre-war levels.

The Fear and Greed Index is used by investors to measure the overall sentiment of the market. This measure is made up of 7 different indicators and is based on the principle that excessive greed usually leads to market tops, while fear has the opposite effect.

Fear and Greed Index
CNN Fear & Greed Index

What Does The Fear and Greed Index Mean?

As mentioned earlier, the index indicates that there is fear in the market despite a slight improvement in market sentiment over the last few weeks. 6 out of the 7 indicators used to calculate the Fear and Greed index point towards fear in the market.

Of the 6 indicators indicating fear, the stock price strength and stock price breadth show extreme fear in the market as these indicators hover around their yearly lows. On a positive note,  the remaining 4 indicators, while still pointing toward fear, suggest a recovery in investment sentiment as geopolitical tensions start to ease.