Fear and greed index still in the red as the VIX retreats and SPX soars

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Written on Nov 6, 2023

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The fear and greed index remains in the fear area in the past few days.
The VIX index has plunged by more than 35% from its highest point this month.
The S&P 500 and Nasdaq 100 indices have jumped sharply recently.

Investors are still fearful even after American stocks staged a major bull run last week. The fear and greed index, which is tracked by CNN, recovered to 42 on Friday, higher than the previous week’s low of 27.

American equities had a strong week as the S&P 500 index (SPX) jumped for all five days. It ended the week at $4,372, which was a 6.4% above the lowest point in October. Similarly, the tech-heavy Nasdaq 100 index rose to a high of $15,100, also over 7.37% higher than the lowest level in October.

The surge of stocks also coincided with the decline of the US dollar index (DXY) and bond yields. After peaking at $107 this year, the index has retreated to $105. US bond yields, which have been rising have also pulled back in the past few days.

The 10-year bond yield has dropped to 4.160% while the 30-year has fallen from over 5% to 4.77%. Also, the closely-watched VIX index has plunged to $14.96, the lowest point since September 20th. It has dropped by over 35% from the highest point this month.

This price action happened after the Federal Reserve decision and the relatively weak Non-Farm Payrolls (NFP) data. In its November meeting, the bank decided to leave interest rates unchanged between 5.25% and 5.50%.

In his press conference, Jerome Powell hinted that the bank would continue being data-dependent. And on Friday, data by the Bureau of Labor Statistics (BLS) showed that the economy added over 150k jobs in October.

The unemployment rate jumped to 3.9% while wage growth was weaker-than-expected. Therefore, investors believe that the Federal Reserve will continue pausing its rate hike policies in the coming meetings and then slash them in the second half of the year.

The junk bond demand sub-index has moved to the greed area while safe haven demand has moved to the neutral point. Put and call options have moved to the fear level while the stock price breadth and stock price strength has moved to the extreme fear region.

Therefore, there is a likelihood that the fear and greed index will now move to the neutral or greed zone in the coming weeks. In most periods, a Santa Claus rally usually happens in the fourth quarter of the year.