# How CNN’s Fear & Greed Index Guides Investor Sentiment and Decisions

![Fear and Greed Index](https://www.investopedia.com/thmb/FI74BF1fC9S0K1Wn4J_Gu-5HewQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_Fear-and-greed-index-Final-v2-d7806b62716e495a8b3868a2d3db754f.jpg)

*— Investopedia / Mira Norian*

## What Is the Fear & Greed Index?

The Fear & Greed Index, developed by CNN Business, is a key tool for tracking investor sentiment in the stock market. It provides insights into how emotional factors like fear and greed drive stock prices, offering valuable data for determining if stocks are overvalued or undervalued. With seven indicators capturing market sentiment, this index serves as an essential resource in crafting informed investment strategies.

### Key Takeaways

*   CNN's Fear & Greed Index is used to measure investor sentiment by analyzing how emotions like fear and greed impact stock market prices.
*   The index is composed of seven indicators, including stock momentum and market volatility, providing insights into market sentiment and potential price movements.  
    
*   Historically, the index has highlighted major market shifts, such as reaching extreme levels during the 2008 financial crisis and in 2020 amid the COVID-19 pandemic.  
    
*   Alternative.me has developed a similar fear and greed index for cryptocurrencies, adapting the concept to the highly emotional nature of crypto markets.  
    
*   While useful, the Fear & Greed Index should be complemented with other research tools to make informed investment decisions.

## How the Fear & Greed Index Quantifies Investor Sentiment

The aim of the Fear & Greed Index is to assess [market sentiment](https://www.investopedia.com/terms/m/marketsentiment.asp). Investments are often driven by emotions. The 24-hour news cycle can cause strong investor reactions, called the [CNN effect](https://www.investopedia.com/terms/c/cnneffect.asp).

The Fear & Greed Index attempts to gauge market trends based on the premise that fear results in stocks [trading](https://www.investopedia.com/terms/t/trade.asp) below their [intrinsic value](https://www.investopedia.com/terms/i/intrinsicvalue.asp) and that greed causes upward trends. The index is a useful investment research tool and market timing [barometer](https://www.investopedia.com/terms/b/barometer.asp).  

> **Tip**
>
> The Fear & Greed Index is useful but should not be your only investment tool. Always research and gather information from other sources before making significant moves.

## Analyzing the Seven Indicators of the Fear & Greed Index

Seven key indicators make up the index:

*   **Stock Price Momentum:** A measure of the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) versus its 125-day [moving average (MA)](https://www.investopedia.com/terms/m/movingaverage.asp).
*   **Stock Price Strength:** The number of stocks hitting [52-week](https://www.investopedia.com/terms/1/52weekhighlow.asp) highs versus those hitting 52-week lows on the [New York Stock Exchange (NYSE)](https://www.investopedia.com/terms/n/nyse.asp).
*   **Stock Price Breadth:** Analyzing the [trading volumes](https://www.investopedia.com/terms/v/volumeoftrade.asp) in rising stocks against declining stocks.
*   **Put and Call Options:** The extent to which put options lag behind call options, signifying greed, or surpasses them, indicating fear.
*   **Junk Bond Demand:** Measures the spread between [yields](https://www.investopedia.com/terms/y/yield.asp) on [investment-grade](https://www.investopedia.com/terms/i/investmentgrade.asp) bonds and junk bonds.
*   **Market Volatility:** The [CBOE's Volatility Index (VIX)](https://www.investopedia.com/terms/v/vix.asp) based on a 50-day MA.
*   **Safe Haven Demand:** The difference in returns for stocks versus [treasuries](https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp).

The index averages the indicators equally, with 50 as neutral. Scores above 50 show more greed; below, more fear.

## Historical Fear & Greed Index Trends and Insights

Historically, the index reliably indicates market turns. It dropped to 12 in September 2008, when the S&P 500 hit a three-year low after the [Lehman Brothers](https://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp) bankruptcy and [AIG's](https://www.investopedia.com/articles/economics/09/american-investment-group-aig-bailout.asp) crisis. Conversely, it rose over 90 in September 2012 as global equities surged post-[Federal Reserve's](https://www.investopedia.com/terms/f/federalreservebank.asp) [quantitative easing](https://www.investopedia.com/terms/q/quantitative-easing.asp).

On March 12, 2020, amid the COVID-19 pandemic, the index dropped to an annual low of 2 as stocks plunged 10% into a [bear market](https://www.investopedia.com/terms/b/bearmarket.asp). By November 2020, it reached 69, signaling extreme greed, as optimism about a coronavirus vaccine rose.

## Comparing Traditional and Cryptocurrency Fear & Greed Indices

Alternative.me introduced a similar fear and greed index for the cryptocurrency market. Developed from various online sources, it measures sentiment for [Bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp) and other [cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp). The index creators say crypto market behavior can be as emotional as traditional markets.

The crypto fear and greed index from Alternative uses the following inputs:

*   Price [volatility](https://www.investopedia.com/terms/v/volatility.asp) over the past 30 and 90 days
*   Market volume and momentum
*   Social media mentions on X platform (formerly Twitter) via coin hashtags
*   Bitcoin market cap dominance
*   Google Trends data for Bitcoin-related searches  
    

## What Is a Fear & Greed Index?

The Fear & Greed Index helps gauge stock market movements and whether stocks are priced fairly. The index is based on the logic that excessive fear drives down share prices, and too much greed has the opposite effect. Alternative.me created a similar index to gauge cryptocurrency market sentiment.

## How Is CNN Business Fear & Greed Index Calculated?

Seven factors are graded to establish how much fear and greed there is in the market, and an equal-weighted average is taken across them. Indicators include stock price momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility, and safe-haven demand.

## How Do Fear & Greed Affect the Decisions of Investors?

Many investors are emotional and reactionary, with fear and greed being the [two predominant emotions affecting investors](https://www.investopedia.com/articles/01/030701.asp). 

## The Bottom Line

The Fear & Greed Index, developed by CNN Business, provides insights into market psychology by quantifying investor sentiment on a scale from 0 (extreme fear) to 100 (extreme greed), thereby offering a valuable tool for assessing market trends. With seven key indicators such as stock price momentum and market volatility, the index empowers investors to better understand market dynamics. However, investors are advised to use this index alongside other research to support their decision-making. For the crypto market, Alternative.me offers a similar index that measures sentiment for Bitcoin and other cryptocurrencies.  

> **Article Sources**
>
> 1.  CNN Business. "[Fear and Greed Index](https://www.cnn.com/markets/fear-and-greed)."
>     
> 2.  Financial Crisis Inquiry Commission. "[Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States](https://www.govinfo.gov/content/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf)." Page xvi.
>     
> 3.  CNN Business. "[Investors Are Getting Greedy Again](https://www.cnn.com/2020/11/16/investing/fear-greed-index/index.html)."
>     
> 4.  Alternative. "[Crypto Fear & Greed Index](https://alternative.me/crypto/fear-and-greed-index/)."