In 2021, the Dow and S&P 500 are both up about 15% and are only a tenth of a percent away from their all-time highs. However, as Friday’s market sell-off demonstrated, investors are still very concerned about the market.
The CNN Business Fear & Greed Index, which takes into account seven different indicators of market sentiment, is indicating Extreme Fear. Four of the seven indicators have turned bearish.
The demand for safe-haven bonds is increasing. This has pushed the benchmark 10-year Treasury yield all the way down to 1.3 percent, from a high of 1.75 percent just a few months ago.
Investors are also purchasing more put options, which give them the right to sell stocks and other assets at a pre-determined price.
The number of companies whose stocks are hitting new 52-week lows versus highs is rising, and trading volume for falling stocks is outpacing volume for rising stocks. Despite this, the FAANGs of Big Tech have made solid gains, helping to lift the broader market.
There are a number of valid reasons for investors to be concerned.
Despite the fact that the economy and corporate earnings have rebounded sharply from pandemic-era lows in the spring and early summer, concerns about the Delta variant and the fact that many Americans are still unvaccinated persist.
There are also mixed signals regarding the recovery. On Friday, the US government reported a significant increase in retail sales for June, but this was complicated by a separate report showing a significant drop in consumer confidence.
Inflation alarm bells are also ringing as the prices of many consumer goods continue to rise.
Nonetheless, some market experts believe that skepticism is beneficial.
On Wall Street, there’s a saying that stocks climb a wall of worry, implying that if the market is rising despite legitimate concerns, it’s a good sign. Excessive speculation and market bubbles are frequently the result of a lack of such concern.
“It’s not abnormal after you have a jolt in the economy and market to have lingering fear. It takes a long time for investors to become comfortable with advances in stocks coming off the bottom,” said Kelly Bogdanova, vice president of the portfolio advisory group with RBC Wealth Management.
“I’d rather see some fear than people being complacent. Investors being nervous doesn’t trouble me,” she added.