Fear and Greed Index
The Fear and Greed Index is a composite sentiment indicator developed by CNN Business that combines seven market signals to produce a score between 0 and 100, with low scores reflecting extreme fear and high scores reflecting extreme greed in U.S. equity markets.
The CNN Business Fear and Greed Index distills market sentiment into a single number by averaging seven component indicators, each measuring a different dimension of market behavior. The components include stock price momentum (S&P 500 versus its 125-day moving average), stock price strength (ratio of NYSE new 52-week highs to lows), stock price breadth (advance-decline volume on the NYSE), put-call options ratio, market volatility (the VIX relative to its 50-day moving average), junk bond demand (spread between investment-grade and high-yield bonds), and safe haven demand (the relative performance of stocks versus Treasuries). Each component is normalized to a 0-100 scale, and the average produces the composite index.
The index is calibrated so that a reading of 0 represents extreme fear (the maximum bearish extreme), 50 represents a neutral baseline, and 100 represents extreme greed (the maximum bullish extreme). In practice, readings rarely approach the extreme ends of this spectrum; more commonly the index oscillates between 20 and 80, with readings below 25 considered extreme fear territory and readings above 75 considered extreme greed territory.
The contrarian interpretation is central to how analysts use this indicator. Extreme fear readings have historically coincided with market selloffs and subsequent recovery opportunities. During the COVID-19 market crash in March 2020, the index reached single-digit readings — extreme fear — near what turned out to be the market bottom. The S&P 500 subsequently recovered more than 60 percent over the following year. Conversely, extreme greed readings in late 2021 coincided with stretched valuations that preceded the significant 2022 market decline.
It is important to understand what the Fear and Greed Index does not do. It is not a precise timing tool and does not predict short-term price movements. It can remain in extreme greed territory for extended periods during strong bull markets, and extreme fear can persist during structural bear markets. The index is best used as one input among many — providing context about where the emotional extremes of the market cycle stand rather than generating specific actionable conclusions on its own.
The public availability of the index on CNN's website has made it one of the most widely referenced sentiment tools among retail participants. Its simplicity and intuitive 0-100 scale make it accessible to audiences that might find the VIX or put-call ratio data more difficult to interpret. For educational purposes, tracking the Fear and Greed Index across multiple market cycles illustrates clearly how investor psychology oscillates between extremes in patterns that tend to repeat, even if the precise timing and magnitude vary.