Fear & Greed Index Plummets to Lowest Level Ever Recorded amid Global Trade War

In a warning sign of the potential for violent volatility in global financial markets, CNN's Fear & Greed Index has fallen to just 4, one of its lowest levels ever recorded, marking the situation as "extreme fear."

This sharp decline does not come out of nowhere; rather, it coincides with a wave of global economic tensions, most notably the resurgence of the trade war between the United States and its partners, led by President Donald Trump's decisions to impose new tariffs.

What is the Fear & Greed Index? And what is its importance?

The Fear & Greed Index is a tool developed by CNN to assess investor sentiment in US stock markets by analyzing seven factors, including market volatility (VIX), bond demand, market momentum, and the strength of safe-haven stocks, among others.

The index ranges from 0 (complete panic) to 100 (excessive greed), and today, at 4, we are witnessing one of the most pessimistic moments on Wall Street in recent years.

The index has fallen to 4… What does that mean for the markets?

When the index reaches extremely low levels, as it is now, it translates into: a mass sell-off of stocks as investors liquidate risky positions, increased demand for safe-haven assets such as gold and US bonds, reduced liquidity, and increased caution in investment decisions.

This is accompanied by violent volatility in US indices such as the Nasdaq, the Standard & Poor's, and the Dow Jones.

Wall Street indices opened sharply lower in trading on Friday, following Beijing's retaliation for President Donald Trump's tariffs, a move that signals a new escalation in a global trade war.

The major US stock indices have fallen significantly since the opening of trading on Friday, and the losses intensified during trading, with the Dow Jones losing more than 1,600 points, or 4%. The S&P 500 fell 4.7%, and the Nasdaq fell 5.3%.

Trade War: A Key Factor in This Decline

Despite domestic concerns regarding high interest rates and a slowing Chinese economy, the return of protectionist threats from Donald Trump provided an additional shock to the markets.

Trump returned to using tariffs as an economic weapon. In his speech on April 2, he described the announcement as "Liberation Day," considering it a step toward restoring American economic independence. He imposed a 10% tariff on all imports, with higher tariffs on some major trading partners, such as China (34%) and the European Union (20%).

Trump justified this move by saying that he "doesn't care" if foreign companies raise their prices, as this would encourage Americans to buy domestic products. 

But the reactions were not long in coming. The decision sparked a wave of criticism and fears of its broad economic repercussions. China responded forcefully, announcing the imposition of new 34% tariffs on US imports, effective April 10. 

Beijing also announced its intention to sue the United States at the World Trade Organization and impose restrictions on exports of rare earth minerals used in advanced medical and electronic technologies.

Conversely, the rest of the United States' major trading partners have not yet taken similar steps, as they monitor developments in the crisis and growing fears of an economic recession.

These messages brought to mind the specter of the trade war that raged between 2018 and 2020, which disrupted global supply chains.

David Kastner, chief market strategist at Mondak Investments, commented: "Markets are not afraid of Trump as much as they are afraid of the disruption his trade policy could cause to the flow of global trade. The return of tariffs with such force will hit profits and increase fear."

Is this the first time the index has fallen this low?

The index hasn't reached 4 in years. Its previous lows ranged between 5 and 8, occurring during crises such as the COVID-19 market crash or the surprise interest rate hike in 2022.

However, 4 is currently one of the lowest 3 levels in the index's history, reflecting the severity of the tension and the decline in investor confidence.

Does this fear provide opportunities?

Ironically, some major investors see moments of "extreme fear" as buying opportunities rather than selling. According to the famous American billionaire Warren Buffett, "Be fearful when others are greedy, and be greedy when others are fearful."

However, experts warn against rushing to a higher level, especially given the lack of a clear vision regarding the future of the global economy and political trends in the United States.

Ultimately, the Fear and Greed Index's decline to 4 is not just a number in a report; it is an early warning of instability that could worsen if trade tensions persist and populist policies escalate.