'Extreme Fear' Grips the Market for the First Time Since November 2022 (FTX Collapse)

 Definition of Fear & Greed Index

The Fear & Greed Index operates from a scale of 0 to 100. When the scale hits below 45, it indicates fear and a score of 55 and above would imply greed. The in-between would be neutral. Scores below 25 and above 75 are labeled as extreme fear and extreme greed respectively. The primary use of the scale is to measure the prevailing emotions influencing the stock market by weighing seven key factors (Liguid ,2025). The seven key factors are:

  1. Stock Price Momentum → Evaluate S&P’s 500 position relative to its 125 moving average

  2. Stock Price Strength → The number of stocks on the NYSE at 52-week highs compared to those at 52-week lows

  3. Stock Price Breadth → Analyse trading volumes that are rising compared to the number of shares that are falling

  4. Pull and Call Options → Examine the ratio of put to call options

  5. Junk Bond Demand → measures the yield spread between investment-grade bonds and junk bonds

  6. Market Volatility → The VIX measures expected price fluctuations or volatility in the S&P 500 Index options over the next 30 days

  7. Safe Haven Demand → Compare returns between stock and Treasury bonds over the past 20 trading days

Current Market Sentiment

As of 13 March 2025, CNN’s Fear and Greed Index has recorded the market sentiment to be at the “Extreme Fear” zone. This shows that investors are feeling extremely uneasy about the market as the shift is mainly due to a mix of economic uncertainties and global geopolitical tensions. This includes the US Trump administration enacting tariffs on allies Canada and Mexico on March 4 as well as pulling away from Ukraine and moving towards Russia (Liguid, 2025). There is also a 10% correction in the S&P 500 over the past month. 

Main key factors attributed:

  1. Escalating Trade Tensions: On March 4 2025, Trump announced that they will impose a 25% tariffs on Canada and Mexico who have been US closest allies (Larkins, 2025). With new tariffs implemented, it has caused severe restraint in their relationship and caused uncertainty into global trade dynamics as Canada and Mexico retaliate the 25% tariffs with the same technique of imposing tariffs. 

  2. Market Volatility and Sell-offs: The Dow Jones Industrials Average experienced a significant drop of 890 points on March 10 2025 while Nasdaq composite fell by 4%. Major companies in the US like Tesla and Nvidia saw substantial stock decline with Tesla’s shares plummeting over 15%. This has caused anxiety in investors.  

  3. Recessions concerns: President Trump further commented on March 10, 2025, acknowledging the possibility of a recession which has led to fear fueled in investors. His statement, "I hate to predict things like that," coupled with ongoing trade disputes which adds to the market's apprehension about economic stability (Larkins, 2025).

  4. Inflation and Consumer Sentiment: A survey from the New York Federal Reserve Bank indicated rising concerns about short-term inflation, with consumer expectations for one-year U.S. inflation growth accelerating to 3.1% in February 2025. Additionally, 27.4% of households anticipated a worse financial situation in the coming year. This has been the highest level since November 2023. 

Fear & Greed Index historical chart growth

From the timeline, it is observed that other than the recent plunge to extreme fear, there are 2 past instances that lead to the same index. The two instances were August 5 and December 19 2024. Main reason for the index hit on August 5 2024 was due to global sell off and economic uncertainty. The market saw a sharp decline following weak tech earnings and US employment data. This was accelerated by an unexpected huge increase in interest rate by the Bank of Japan which resulted in investors trying to unwind their yen carry trades. Gradually, a ripple effect occurs across global markets.  

  • Japan’s Nikkei index plummeted 12 percent in a single session.

  • The S&P 500 fell over 4 percent amid investor concerns about an economic slowdown.

  • The International Monetary Fund (IMF) warned that the volatility could be a precursor to prolonged instability.

On December 19 2024, the extreme fear index was caused by the federal hawkish stance. This occurs when the announcement made by Federal Hawkish about having interest rates to remain elevated longer than expected. This caused huge 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.

  • The Dow Jones Industrials Average fell over 1,200 points as investors reassessed their outlook for rate cuts in 2025.  

What Extreme Fear means for investors

Plunging into the “Extreme Fear” zone could cause widespread anxiety amongst investors as they are worried about further declines and it can be a signal for contrarian investors to buy during this period.  

Historically, with the same level of extreme fear, it is noted that they have often preceded market rebounds as extreme pessimism could lead to an investing opportunity for contrarian investors. However, it is always essential to approach these situations with caution as the market is unpredictable. Diverse portfolios are advised to investors when making decisions during this period of heightened market volatility. 

Key considerations for investors:

  • Economic data → Investors are required to monitor employment reports, inflation data and GDP growth figures

  • Federal reserve Policy → Interest rate decisions are key driver of market sentiment 

  • Corporate earnings → weak earnings report could provoke investor’s fear while strong earnings report could signal resilience 

  • Geopolitical developments → Trade tensions, global conflicts and macroeconomic policies can shift market sentiment quickly

However, investors should not only focus on the Fear & Greed Index as the only instrument to make investment decisions despite providing valuable and insightful information. They should always use the index together with fundamental and technical analysis to make informed decisions.




References

CNN. (2025, March 13). Fear & Greed Index. https://edition.cnn.com/markets/fear-and-greed

Jett, J. (2025, March 5). Yahoo News. Trade tensions heat up as China and Canada retaliate against U.S. tariffs. https://www.yahoo.com/news/trade-tensions-heat-china-canada-073926769.html

Larkin, M. (2025, Octocber 3). Investor's Business Daily. Stock Market Today: Dow Jones Dives 890 Points On These Trump Recession Fears; Tesla Plummets As Elon Musk Reveals This Attack (Live Coverage). https://www.investors.com/market-trend/stock-market-today/dow-jones-dives-nasdaq-sp500-trump-recession-palantir-pltr-nvidia-nvda-tesla-tsla/

Liguid, G. (March 4, 2025). CNN Fear and Greed Index Plunges to "Extreme Fear" — What it Means for Global Markets. Nasdaq. https://www.nasdaq.com/articles/cnn-fear-and-greed-index-plunges-extreme-fear-what-it-means-global-markets 

Nasdap. (2025, March 4). CNN Fear and Greed Index Plunges to "Extreme Fear" — What it Means for Global Markets. https://www.nasdaq.com/articles/cnn-fear-and-greed-index-plunges-extreme-fear-what-it-means-global-markets

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