Market fear signals flash red as stocks retreat from all-time highs | Private Equity Weekly
Several major indicators of market panic reflect increased investor alertness. The Cboe Volatility Index, a measure of expected market instability and known as Wall Street’s “fear gauge,” crossed 19 points on Monday and closed at its highest level since October. It approached the key 20 level in late fall 2023 and at other times during the pandemic when traders were wary of stock market corrections. @VX.1 1Y mountain VIX over the past year Meanwhile, CNN’s Fear & Greed Index has moved into “fear” territory this week. The market sentiment tracker was in “neutral” territory a week ago, but was in “greedy” territory a month ago and a year ago. The index compiles seven different indicators, including put options and junk bond demand, with five labels ranging from “extreme greed” to “extreme fear.” When it falls below the 50-point average score, as it has in recent days, it can be seen as a sign that investors are getting nervous. Goldman Sachs’ trading desk’s so-called fear gauge has climbed to its highest level since early 2023. Taken together, these data points highlight the growing nervousness among market participants. It comes as markets take a breather after rising amid growing concerns that interest rates could remain higher for longer and conflicts in the Middle East escalate. Alex McGrath, chief investment officer at NorthEnd Private Wealth, said the market’s “concern has gotten worse”, citing the situation in the Middle East as well as elevated market valuations and interest rate trends. “You’re in a bad mood right now.” Monetary policy has been at the forefront of investors’ minds for more than a year as investors wonder when or if the Federal Reserve will start lowering interest rates after a historic tightening campaign. Traders in federal funds futures are pricing in the first rate cut in September, according to the CME Group’s FedWatch tool. That’s much later than market participants expected this year. Those hoping for a speedy rate cut were dealt a heavy blow when closely watched economic data was released last week. On an annualized basis, price indexes linked to consumers and wholesalers showed inflation remained above the Fed’s preferred 2% level, raising concerns that borrowing costs could remain elevated for longer than previously expected. Worry. That’s contributed to the recent market declines, as major stock indexes have retreated in April from all-time highs reached earlier this year. So far this month, the S&P 500 is down more than 3%, while the Nasdaq is down nearly 3%. The Dow is expected to drop nearly 5% during that period. .DJI .SPX, .IXIC Year-to-date peaks in 2024 The latest decline in the three major indexes has brought the Dow just shy of the flat line in 2024, a stunning reversal after trading at the key 40,000 level a few weeks ago. U.S. Treasury yields also rose, with the 10-year bond rate exceeding 4.6%. Rising oil prices also weighed on stocks, with commodities traders buying in anticipation of intensifying conflict in the Middle East. Iran launched hundreds of drones and missiles at Israel on Saturday, although the attack was largely thwarted by Israeli defenses. Now, traders are watching Israel’s response. Jason Heller, executive vice president at Coastal Wealth, said the current market downturn should not be viewed as a typical, healthy correction. But he said the main threat to that prospect was a further escalation in the Middle East. “It’s rare in the market that people take the escalator up — usually it’s the elevator,” Heller said. But, “when I give you a forecast, I always write in pencil because things can change.” “I I think this is just the natural ebb and flow of market pricing,” he added. “However, it is important to note that if things really go wrong in the Middle East, that could change.”
