The fear had evaporated but seems to be coming back

Pressure from rates, oil and inflation weigh on stock markets, despite good corporate results and the boost of artificial intelligence

The Fear & Greed Index created by CNNMoney is a way to measure stock market movements and assess whether stocks are reasonably priced or not. You’ve just entered «scary» territory.

The theory of this index is based on the logic that an excess of fear tends to drive down stock prices because selling becomes widespread and an excess of greed has the opposite effect. It is striking that in the last month the index has gone from an environment of greed (appetite for buying) to neutrality and to indicate fear, accentuated in the last week, that is, an inclination to sell on the part of investors, which seems to be consistent with the latest events.

What happened in the US

This behavior of the index is in line with the falls of the stock markets in the recently begun month of September. Despite the excellent corporate results published during the summer, we have seen declines motivated by the difficult US macro situation that is currently being seen.

On the one hand, the hawkish speech delivered ten days ago in Jackson Hole by Fed Chairman Kevin Warsh raised interest rate expectations considerably. Warsh reaffirmed the Fed’s inflation target of 2% and insisted on the idea that the central bank still has «work to do» unless core inflation clearly moves towards that target at a sufficient pace, which is unlikely given President Trump’s warmongering pretensions and its effect on the cost of energy.

The odds of a rate hike in September soared from 36% to 58% and the yield on 10-year Treasuries rose to 4.75 – 4.8%, its highest level since January 2025 even with the US Treasury actively buying long-term Treasuries and shifting its issuance profile towards short-term Treasury bills). Yields on Japanese 10-year government bonds, meanwhile, approached 3% for the first time since 1996 and yields on German bonds (Bund) exceeded their highest level since 2011 by touching 3.5%. Higher interest rates make investment in fixed income vs. equities more attractive, in addition to the general increase in financing costs for both individuals and companies. Bad, then, for the economy and for the markets.

The conflict that does not end

The November midterm elections in the United States are approaching and Trump continues to fall in the polls. This factor, which was seen as a catalyst to stop the war, does not sufficiently affect the American president and his administration for now, which cannot find the way to stop the conflict. As things stand, the Americans and Iranians continue to exchange attacks, aggravating tensions around the Strait of Hormuz and bringing the price of oil closer to $100.

Published results, AI and «FOMO» are not enough

The aforementioned favorable corporate results, the boost of Artificial Intelligence (AI) in the technology sector and its favorable cascade effect on the rest of the US economy, the underlying strength of this demonstrated in the good employment data that we learned last week and the persistent FOMO (fear of missing out or fear of missing out on the upside), are not being enough support for a market that is apparently losing bullish traction.

Factors such as the aforementioned global bond yields, which reach the highest level since the Great Financial Crisis of the first decade of the 2000s, the acceleration of oil prices and with them the risk of inflation getting out of control and the doubts of many investors about the low levels of volatility in the indices (that of the S&P 500 is close to 10-year lows), they are large enough to cause a decline in the stock markets.

The greatest uncertainty lies in whether this decline would be anindicator of a change in trend or a parenthesis in the good performance of the global equity markets that we have been enjoying for some time. With the information available to us, I lean towards the latter.