With increased conversations around the markets lately, you may have come across the terms VIX and Fear & Greed Index. Given this, I thought it might be helpful to provide an overview of these two indices — what they are, how they work, and why they matter.
1. The VIX: A snapshot of market volatility
Often referred to as the “fear index,” the CBOE Volatility Index, or simply the VIX, the Chicago Board Options Exchange Volatility Index measures expected volatility in the S&P 500 over the next 30 days, based on options trading activity.
Readings start at zero, with no upper limit, and generally indicate the following:
- Under $15 – Typically calm, steady markets
- $15-$25 – Moderate volatility
- $25-$30 – Rising uncertainty
- Over $30 – Potentially significant investor anxiety and possibly sharp price swings
Since volatility and market performance are usually inversely related, a rising VIX often indicates increased pressure on markets.
2. The CNN Fear & Greed Index: Gauging investor emotion
This index, developed by CNN Business, scores investor sentiment on a scale from zero (extreme fear) to 100 (extreme greed). It combines seven market indicators, such as:
- Momentum in the S&P 500
- Stock price strength
- Stock price breadth
- Put and call options activity
- Market volatility (measured through the VIX)
- Safe haven demand (lower-risk assets like bonds)
- Junk bond demand (higher-risk, high-yield assets)
A lower score can reflect heightened fear and caution, while a higher score may suggest growing optimism — or even potential overconfidence — in the markets.
3. Why these indicators matter
It’s important to view these tools in the right context. While they may provide a short-term pulse on investors’ feelings, they are generally not intended to drive long-term investment decisions.
Instead, these indices are best used as one of many tools to provide perspective on broader market trends, helping investors put daily volatility into context while keeping their longer-term financial goals in focus.
As always, if you have any questions, please contact mallory@trademarkcapital.com!
Thank you for reading!
Joe Ezernack
This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Trademark Capital’s investment strategies are built using quantitative, proprietary algorithms that are designed to identify and react to changing market conditions. However, investors should be aware that no investment strategy or risk management technique can guarantee returns or eliminate risk in any given market environment. As with all investments, Trademark Capital Management’s investment strategies are subject to risk and may lose money. The investment strategies presented are not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Due to our active risk management, our managed portfolios may underperform during bull markets. Past performance is no guarantee of future results.
