Fear and Greed
We use numerous metrics to track the temperature of the stock market, however, one important metric is the CCN Fear and Greed index. The Fear and Greed index is measured on a scale of 1 to 100 and measures a variety of elements such as market volatility, stock price breadth, and momentum. Recently, the index was measured at 24, or in the extreme fear category….
When the index is 25 or below, it is said that we are in a period of “extreme fear”. When the market is at 75 or above, we are in a period of “extreme greed”, which it last hit in July of 2023. These metrics are helpful to put market swings in perspective and to act as a check and balance to our own emotions about market movements.
Warren Buffet famously said that investors should “be fearful when others are greedy and to be greedy when others are fearful”. We want to stay aware of both risk and opportunity when it comes to investing. When the Fear and Greed Index is showing extreme fear, it is likely that there are buying opportunities in the market. When the index is showing extreme greed, investors may be overly optimistic and it might be a good time to take profits and scale back risk in our portfolios.
For example, the index posted a high on June 30th of 84 (extreme greed). The market subsequently peaked on July 31st and has since fallen about from its June 30th level. Currently the index is at 24, or in the extreme fear category. This doesn’t mean that we’re at the market bottom, but it’s helpful to note that during periods of extreme fear there might be good long-term entry points into the market and investors may be excessively pessimistic.
The Fear and Greed index is just one of many tools available to measure opportunity and risk in the market, and other data should be included before making any decisions. That said, we’ve found that the Fear and Greed Index tends to not only reveal what is happening in the markets, but what also might be happening in our own sentiment about the economic environment. While it’s difficult to “be greedy” when the markets are falling and we feel fearful, history has shown that is often one of the best times to invest.