What is the fear and greed index?

In the investment realm, fear and greed are powerful emotions that can influence investor behavior, which, in turn, can impact the stock market. The Fear and Greed Index, developed by CNNMoney, is a multi-factored gauge of stock market sentiment designed to identify which of those emotions may be driving the stock market at any given time.

What's going on with the CNN Money fear and greed index?

The CNN Money Fear and Greed index showed a further increase in the fear level among US investors. The Dow Jones closed lower for fifth straight day amid the collapse of Silicon Valley Bank (NASDAQ:SIVB). The Federal Reserve Board, meanwhile, announced funding to backstop the struggling bank with the Bank Term Funding Program.

How do fear and greed affect the stock market?

Fear is what drives investors to flee the market in panic when it turns bearish, and greed is often at the root of "irrational exuberance" that can lead to stock market bubbles. When those sentiments change, from fear to greed or vice versa, it can predict a change in the stock market's direction. The premise of the Fear and Greed Index is that:

Is fear back in the stock market?

Extreme fear is back in the stock market, according to CNNMoney's Fear & Greed Index. Just how bad is it? The index has a 100 point scale -- with 0 indicating nightmare level fear and 100 signaling "buy everything in sight" greed. On Monday, the Fear & Greed Index fell to 7.