Fear & Greed Index Hits 31: Investors Are Running Scared. Should You Be?
Markets are flashing extreme fear, but Wall Street veterans say investors are watching the wrong thing. The real threat to your finances may be hiding in a corner of the market most people ignore until it's too late.
CNN’s Fear & Greed Index rose to 31 on Wednesday, deep in “Extreme Fear” territory. A week ago, it read 30. The increase follows a hot inflation report, new attacks in the Middle East, and a selloff in chipmakers as AI debt fears intensify, with CoreWeave (NASDAQ:CRWV) under scrutiny over CoreWeave’s debt. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has slipped 1.22% over the past week.
Investors have reason to be nervous. The danger for regular Americans, though, sits in the bond market more than in the AI stocks grabbing headlines.
Fear Gauge Signals Flash Red, With Gaps
The index combines several equally weighted market signals, and most are flashing warnings. The S&P 500 trades below its 125-day moving average. The NYSE is posting more 52-week lows than highs. Safe-haven demand shows extreme fear as money moves into bonds, and junk bond spreads also read fear. Traders are buying protection, too: the SPY put/call ratio stands at 1.18, meaning puts outnumber calls.
The volatility index tells a calmer story. The VIX closed is at 18.52 today, inside its normal 15 to 20 range but below its one-year average of 18.02. In March, it hit 31.05. The Fear & Greed reading itself was 35 a month ago and 26 a year ago, so today’s level is familiar ground. Stocks remain up 11.8% year to date.
Shoppers Keep Spending While Yields Climb
Consumers say they feel bad. The University of Michigan sentiment index stood at 51.7 in August, below the 60 level associated with recessions. Their wallets disagree. Retail sales reached $745.0 billion in September, up 0.8% from August and the highest reading of the past year. The yield curve also remains positive, with the 10-year yield 0.37% above the 2-year, so it is not signaling a recession either.
The real pressure point is the 10-year Treasury yield, which stood at 5.21% on October 13. A year ago it was 4.05%, and it touched 5.31% on October 5. Barron’s put it bluntly: “The AI Selloff Is Bad but the Bond Market’s Reaction Is Worse.” That yield sets the floor for mortgage rates and corporate borrowing costs. It also explains the AI rout. Companies borrowing heavily to build data centers look riskier when debt costs rise, and higher discount rates reduce what future profits are worth today.
For households, that means a hot inflation report matters more than a bad week for chip stocks. Sticky inflation keeps long rates high, which pressures home buyers and anyone carrying variable-rate debt.
Signals to Track Before You React
Three markers will show whether this scare becomes something bigger. First, a 10-year yield above 5.31% would set a new one-year high and likely push mortgage rates up with it. Second, a VIX close above 20 would move volatility into the higher range, confirming the fear the index already shows. Third, October retail sales will show whether gloomy consumers finally cut back, since sentiment tends to lead spending by one to three months.
Long-term investors have weathered readings like this before. SPY is up 256.66% over 10 years. The better use of this moment is reviewing how much your portfolio and borrowing depend on rates staying high (see our free handbook on riding out, and eventually leaving, market manias like the current AI run: The Bubble Survivor’s Handbook).
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After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years, he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, Money Morning, and, of course, 24/7 Wall St. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.
