Investor anxiety is reaching new heights. CNN’s Fear and Greed Index plunged to just three on April 8, marking its lowest level since March 2020, when COVID-19 lockdowns sent shockwaves through financial markets.
The index has since made a modest improvement and is sitting at eight.
These levels reflect sentiment not seen in over five years. Historically, fear of this magnitude correlates with significant market selloffs. For instance, in 2020, the index remained in single-digit territory from March 5 to 23 — a period when the S&P 500 (INDEXSP:.INX) lost more than 30 percent of its value during the early stages of COVID-19.
Economists and traders alike warn that fluctuations in this range can be short-lived, but tend to bring extreme volatility, often resulting in steep market declines. Although the first signs of recovery usually emerge once the Fear and Greed Index climbs above 10, a more reliable signal is a return above 25, which tends to precede sustainable rallies.
US President Donald Trump’s tariffs are behind the latest nosedive. Although a 90 day reprieve has been announced for most countries, uncertainty about the future remains. In addition, tensions between China and the US are heating up — US tariffs on China have ballooned to 145 percent, and China has raised its tariffs on US goods to 84 percent.
The immediate market reaction was negative. US stock markets experienced a sharp decline, and although there’s been some recovery, investors are increasingly concerned about the potential for these trade disputes to escalate into a global recession, contributing to the heightened levels of market fear reflected in the index.
While market sentiment indicators like the Fear and Greed Index don’t dictate future price movements, they do provide insight into the emotional state of the market — often a contrarian signal for savvy investors. When fear reaches extreme levels, it has historically marked moments of potential opportunity or further market turbulence.
So what does this latest drop in the Fear and Greed Index really mean? This article explores the significance of the CNN Fear and Greed Index, its historical context and what investors should watch for next.
What is CNN’s Fear and Greed Index?
CNN’s Fear and Greed Index is a tool designed to measure the prevailing emotions influencing the stock market by weighing seven key indicators. The Fear and Greed Index operates on a scale of zero to 100, with a score under 45 indicating fear, a score of 55 and above signifying greed and one in between marked as neutral.
Scores of under 25 and above 75 are labeled ‘extreme fear’ and ‘extreme greed,’ respectively.
How is CNN’s Fear and Greed Index calculated?
The index aggregates seven key indicators, each reflecting different aspects of market sentiment:
- Stock price momentum — Compares the S&P 500’s current value to its 125 day moving average.
- Stock price strength — Tracks the number of stocks hitting 52 week highs vs. those reaching 52 week lows.
- Stock price breadth — Examines trading volume in advancing vs. declining stocks.
- Put and call options — Analyzes the ratio of bearish (put) options to bullish (call) options.
- Junk bond demand — Measures the yield spread between high-yield (junk) bonds and safer investment-grade bonds.
- Safe-haven demand — Assesses the relative performance of stocks vs. government bonds.
When these indicators collectively signal heightened caution, the Fear and Greed Index falls into the fear zone, with extreme fear indicating widespread pessimism in the markets.
Recent instances of extreme fear
Understanding past instances of extreme fear can provide insights into current market conditions. The last two notable times the index hit extreme fear were August 5, 2024, and December 19, 2024.
1. August 5, 2024: Global selloff and economic uncertainty
On August 5, 2024, markets saw a sharp decline following weak tech earnings and US employment data, accelerated by an unexpected interest rate hike by the Bank of Japan that resulted in investors trying to unwind yen carry trades.
This caused a ripple effect across global markets:
- The S&P 500 fell over 4 percent amid investor concerns about an economic slowdown.
- The International Monetary Fund warned that the volatility could be a precursor to prolonged instability.
2. December 19, 2024: Federal Reserve’s hawkish stance
Investor fears resurfaced in mid-December 2024, when the US Federal Reserve signaled that interest rates would likely remain elevated longer than expected. The announcement sent shockwaves through the markets:
- The US dollar surged to a two year high, weighing heavily on emerging markets.
- Cryptocurrencies took a hit, with Bitcoin dropping over 15 percent in a week.
How do other fear-based indexes compare?
While CNN’s Fear and Greed Index is a popular barometer of market sentiment, it isn’t the only fear-based indicator worth watching. Here’s how other major sentiment gauges compare:
Crypto Fear & Greed Index
The Crypto Fear & Greed Index tracks investor sentiment in the cryptocurrency market. Crypto markets are particularly sensitive to risk-off sentiment, making this index an important measure for digital asset investors.
The Crypto Fear & Greed Index has also dropped into extreme fear, with a score of 15 on March 4. This decline coincided with continued geopolitical tensions, including Trump’s announcement of 25 percent tariffs on Canada and Mexico.
Doomsday Clock
Though not a financial index, the Doomsday Clock, updated annually by the Bulletin of Atomic Scientists, reflects global existential risks, including nuclear tensions, climate change and geopolitical instability.
As of January 28, 2025, the clock was at 89 seconds to midnight, signaling heightened global uncertainty, which can influence investor sentiment in risk assets like equities and cryptocurrencies.
What extreme fear means for investors
The plunge of CNN’s Fear and Greed Index into Extreme Fear territory signals widespread investor anxiety. But is this a warning of further declines, or a contrarian buy signal?
Historically, moments of extreme fear have often preceded strong market rebounds, as panicked selling creates opportunities for value investors. However, not all instances lead to immediate recoveries; some mark the beginning of prolonged downturns, and it can be difficult to tell which scenario is ahead.
Key considerations for investors:
- Economic data: Keep an eye on employment reports, inflation data and GDP growth figures.
- Fed policy: Interest rate decisions will continue to be a key driver of market sentiment.
- Corporate earnings: Weak earnings reports could exacerbate investor fears, while strong results may signal resilience.
- Geopolitical developments: Trade tensions, global conflicts and macroeconomic policies can shift market sentiment quickly.
While fear-based indicators provide valuable insights, investors should use them alongside fundamental and technical analysis to make informed decisions. Whether this moment marks a temporary panic or the start of a broader downturn remains to be seen, but one thing is clear: investors should be prepared for volatility in the weeks or months ahead.
Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.