Tags: fear | Heath | Europe | stock

CNNMoney's Fear & Greed Index Sounds Alarm Bells

By    |   Tuesday, 14 October 2014 12:50 PM

CNNMoney's Fear & Greed Index showed extreme fear Monday, sounding huge alarm bells.

On a scale of zero to 100, the needle hit zero, the ultimate case of extreme fear. The index hasn't shown such fear since August 2011, just after Standard & Poor's downgraded U.S. debt.

The Chicago Board Options Exchange Volatility Index (VIX), one of the factors used to compute the fear index, indicates that volatility has returned in a big way, CNNMoney notes, saying the VIX is up 60 percent in the past week alone.

Reasons for increased market volatility and investor fear abound. The Ebola outbreak, conflict in the Middle East, a struggling European economy and the possibility of future interest rate increases have been commonly cited.

U.S. stock markets haven't been the only ones to suffer. "Stock markets around the world have lost a substantial amount of value in recent days, with gains for the year wiped out and more," writes Allister Heath for The Telegraph in the U.K.

Heath lists seven reasons for stock market turbulence: a poor German economy, Ebola, falling oil prices, the end of the Federal Reserve's bond-buying stimulus, a slowing Chinese economy, trouble in European economies and conflict in the Middle East.

The Ebola epidemic, which the World Heath Organization calls the worst health emergency in modern times, is restricting air travel, increasing the price of some commodities and wrecking stock prices of travel-related companies, according to Heath.

Although falling oil prices are good for consumers, they also mean oil exporting countries have less to spend around the world and they impact shale oil, as it cannot be drilled profitably if oil prices are too low.

The tapering of the Fed's quantitative easing and the European Central Bank's inability or unwillingness to launch a similar bond-buying program is also causing concern.

"Many forecasters," Heath says, "are predicting regional deflation in the medium-term – with prices falling for the wrong reasons, upping the real value of debt and creating all sorts of other problems."

In Europe, France and Italy are prompting worries, he adds.

"It is hard to see either nation ever getting its act together. France is facing an intractable political crisis, with the demagogic Marine Le Pen rising seemingly unstoppably in the opinion polls. Where that leads is anybody’s guess."

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CNNMoney's Fear & Greed Index showed extreme fear Monday, sounding huge alarm bells.
fear, Heath, Europe, stock
Tuesday, 14 October 2014 12:50 PM
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