Several key indicators of fear in the market reflect heightened caution from investors. The CBOE Volatility Index, a measure of expected market volatility known as Wall Street’s “fear gauge,” topped 19 on Monday, closing at its highest level since October. It also approached the key level of 20 in late fall 2023 and other times during the pandemic when traders were wary of a stock correction. @VX.1 1Y Mountain His VIX over the past year At the same time, CNN’s Fear and Greed Index is leaning into “fear” territory this week. The market’s mood tracker was sitting in the “neutral” zone a week ago, but comfortably in the “greedy” range a month and a year ago. The index compiles seven different indicators, including demand for put-and-call options and junk bonds, and has five labels ranging from “extreme greed” to “extreme fear.” When the average score drops below 50, as it has in recent days, it could be taken as a sign that investors are getting nervous. And the Goldman Sachs trading desk’s so-called panic index rose to levels not seen since early 2023. Prior to that, this level was reached during the market decline in 2022. Taken together, these data highlight a growing sense of unrest among market participants. This comes as the market takes a breather from the rally, but amid growing concerns about the possibility of interest rates remaining high for an extended period of time and escalating conflict in the Middle East. Alex McGrath, chief investment officer at North End Private Wealth, said the market was “flying off this fear like a salve”, citing high market valuations and interest rate movements as well as the situation in the Middle East. Ta. “You’re thinking a lot right now.” 1 as investors wonder when or if the Federal Reserve will start cutting interest rates following a historic tightening campaign. Monetary policy has been the most important issue for more than a year. Federal funds futures traders are pricing in the first rate cut in September, according to the CME FedWatch tool. This was much later than market participants had expected going into this year. Those hoping for a rate cut sooner or later were dealt a big blow with the close economic data released last week. On an annualized basis, price indexes related to both consumers and wholesalers show that inflation remains above the Fed’s recommended standard of 2%, and that borrowing costs will continue to rise for longer than previously expected. There are growing concerns that prices may remain high for an extended period of time. The decline in major indexes in April from record highs reached earlier this year is one reason for the recent market decline. Month-to-date, the S&P 500 index is down more than 3%, while the Nasdaq Composite Index is down nearly 3%. The Dow Jones Industrial Average is expected to fall nearly 5% over the period. .DJI .SPX,.IXIC YTD Mountain 3 Major Indices for 2024 This recent decline puts the Dow just short of a 2024 flatline, having been trading near the key 40,000 level just a few weeks ago. What followed was a surprising reversal. Government bond yields also rose, with the 10-year bond rate exceeding 4.6%. Rising oil prices have also weighed on stock markets, with commodity traders buying on expectations of escalating conflict in the Middle East. Iran launched hundreds of drones and missiles toward Israel on Saturday, but the attack was largely thwarted by Israel’s defense systems. Traders are now keeping an eye on Israel’s reaction. Jason Heller, executive vice president at Coastal Wealth, said the current market downturn should not be taken as anything other than a typical and healthy correction. But he said the main threat to this outlook is if the Middle East problem worsens further. “I almost never ride the escalator at the market. I mostly ride the elevator,” Heller said. But “I always write in pencil when I make predictions, because things can change.” “I think this is just the natural ebb and flow of market prices,” he added. “But we have to be careful: if the situation in the Middle East really changes direction, the calculus could change.”
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