Who knew Europe could wield so much power? A deal, and not even a very concrete one, is sending investors on a buying spree.
Stocks around the globe rallied on the surprise announcement, which could mark the first baby step toward creating a banking, and ultimately fiscal, union. Of course, there are about a thousand details that need to be hammered out but for now everyone is in a celebratory mood.
Just take a look at CNNMoney's Fear & Greed Index, which hit 50 for the first time in months. The biggest drivers? A sharp drop in safe-haven demand, like Treasuries, where the 10-year yield is hovering around 1.65%, and junk bond demand (you know, the assets that come with super high yield along with super high risk).
It hasn't been above 50 since April 9 -- the day markets sold off on a lousy jobs report. And it's pretty much been downhill ever since. Things were actually looking pretty good until then - stocks had just closed out a spectacular quarter.
But worries about Europe's debt crisis, and a potential exit by Greece sent investors on a stomach churning, heart wrenching ride. In fact, May was the worst month for stocks in two years and the Fear & Greed Index hit an 11-month low of 8 on June 1.
The second half of last year was marred by Europe's debt crisis but also by worries about debt problems in the United States and signs of a slowing global economy.
That fear sent investors fleeing for the exits and into the safe havens of U.S. Treasuries and gold. Last September, the price of an ounce of gold hit a record intraday high of $1,923.70. Today, it's trading just under $1,600.
With all that fear running rampant, we thought it was a great time to create our own risk gauge -- CNNMoney's Fear & Greed Index launched last month. We targeted 7 key market indicators, including volatility, junk bond demand and stock highs and lows.
Using the power of algorithms, we combined them all into one brand spanking new index that tracks just how much risk investors are willing to stomach, on a scale of 0-100. You might start hearing the casino mantra "place your bets" if the number keeps moving above 50, but if it reverses course, you might want to take some chips off the table.
Last year, the VIX (VIX), the market's other fear gauge, stayed above 30 from August through November. Any number above 30 signals growing fear. The put/call ratio, which compares the trading volume of bullish call options (right to buy) against the trading volume of bearish put options (right to sell), was also practically off the charts.
On top of that, money was flowing out of markets during the latter part of the year -- much like most of the past 18 weeks. In fact, investors have yanked nearly $58 billion from U.S. stock mutual funds since the start of this year.
It may be awhile before we can really say we're out of the woods but for now, let's enjoy the ride.
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