Investor sentiment can shift markets—sometimes more than earnings reports or economic data. One of the most popular tools for gauging investor emotion is the CNN Fear & Greed Index, which offers a snapshot of whether the market is leaning toward fear or greed. But how exactly is this index calculated?
Let’s break down the seven components that make up this influential sentiment tracker.
What Is the CNN Fear & Greed Index?
The Fear & Greed Index measures the emotions driving the market by analyzing seven different indicators. These indicators reflect momentum, volatility, demand for safe havens, and more. The goal is to identify whether investors are being irrationally fearful or greedy—both of which can signal a potential market turning point.
The index ranges from 0 to 100:
- 0–49: Fear
- 50–100: Greed
Extreme readings on either end often suggest a reversal could be near.
The 7 Indicators Behind the Index
Here’s what CNN uses to calculate the index:
1. Stock Price Momentum
- Measured by: S&P 500 vs. 125-day moving average
- Signal: A market trading well above its moving average may suggest greed; below indicates fear.
2. Stock Price Strength
- Measured by: Number of stocks hitting 52-week highs vs. lows on the NYSE
- Signal: More highs show bullish greed; more lows point to bearish fear.
3. Stock Price Breadth
- Measured by: Volume in advancing vs. declining stocks
- Signal: A market with broad participation (more volume in advancing stocks) reflects greed.
4. Put/Call Options Ratio
- Measured by: Ratio of bearish put options to bullish call options
- Signal: A high ratio suggests fear as more investors hedge; a low ratio implies greed.
5. Junk Bond Demand
- Measured by: Spread between junk bonds and safer investment-grade bonds
- Signal: Lower spreads (high demand for risky debt) indicate greed.
6. Market Volatility
- Measured by: VIX (CBOE Volatility Index)
- Signal: Higher VIX values show fear; lower values suggest calm—and possibly complacency or greed.
7. Safe Haven Demand
- Measured by: Difference in returns between stocks and Treasury bonds
- Signal: Higher bond demand (relative to stocks) indicates fear; lower suggests greed.
How Often Is the Index Updated?
The CNN Fear & Greed Index updates daily during market hours. This real-time nature allows traders and investors to monitor shifts in sentiment as they happen—making it a valuable short-term indicator.
Final Thoughts: Why It Matters
While the Fear & Greed Index shouldn’t be used in isolation, it can be a useful gauge of market psychology. Extreme fear may present buying opportunities, while extreme greed might suggest it’s time to be cautious.
Understanding how this index is built helps investors better interpret what it’s really saying—and make smarter, emotion-aware decisions.