The current Investopedia Anxiety Index reading is above neutral, indicating a higher level of anxiety.
The markets today
US stock futures are flat after yesterday’s gains following profits at major retailers Walmart and Home Depot. Walmart Stock (WMT) rose more than 4% in premarket trading after announcing that its earnings and revenue beat lower expectations and reiterated its outlook for the second half of the year. Home Depot’s earnings also exceeded expectations and the home improvement company maintained its guidance for this year. Home Depot Stocks (HD) are approximately 0.6% lower in premarket trading.
Yesterday, stocks finished higher, adding to recent strong gains. The Nasdaq added 0.6%, while the Dow Jones and S&P 500 rose about 0.4%. Treasury yields eased as weak economic data from China raised concerns of a global recession (see below). The yield on the 10-year Treasury bond is 2.78%. Oil prices fell on concerns about falling demand for energy products. Light sweet crude is now below $89 a barrel.
Overseas, European equities rose slightly, with the Euro Stoxx 600 slightly upward. In Asia, stocks were mixed. The Shanghai Composite was flat, while the Hang Seng fell about 1%. In Japan, the Nikkei finished flat.
The commercial department reported Housing starts fell more than expected by 9.6% last month to a seasonally adjusted rate of 1.45 million units as rising raw material and labor costs weighed on builders of houses. Permit for future home construction fell 1.3% in July to 1.67 million units.
Furthermore, the Federal Reserve should point out that manufacturing rose 0.2% in July, after falling 0.5% in June. Ability to use for the manufacturing sector probably reached 80.1% in July, compared to 80% in June.
What the index shows
The Investopedia Anxiety Index (IAI) is a measure of investor sentiment based on the behavior of tens of millions of Investopedia readers around the world. A reading of 100 is considered “neutral”.
The IAI is driven by reader interest in Investopedia in three categories of topics: macroeconomics (like inflation and deflation), negative market sentiment (like short selling and volatility), and debt/credit (like default, solvency and bankruptcy) .
In 2012, Seth Steven-Davidowitz published an article in The New York Times explaining how he used Google search results to uncover voter biases that pollsters couldn’t find. As of March 2022, Investopedia had over 44 million monthly unique visitors, and with Steven-Davidowitz’s work in mind, we asked ourselves, “What can our readers’ search behavior tell us about the state of markets and the economy?
We have the data: over 30,000 quality content URLs from before the collapse of Lehman Brothers and the 2008 financial crisis. In late 2015, I represented the editorial team and worked with our lead scientist, Dr. Ronnie Jansson, to look for patterns in our most-viewed papers. We have carefully selected a selection of terms on topics suggesting investor fear, such as ‘default’, and opportunistic terms, such as ‘short selling’.
It is difficult to find a signal in noisy web traffic data due to the variable seasonality of our readership (e.g. traffic decreases on weekends) and exogenous factors such as search engine results page rankings. search (SERP). We first needed to develop a methodology to remove this noise and produce an index that robustly tracks the actual ebb and flow of interest in the chosen topics.
When we first looked at the results of the analysis, we found that the major spikes in the index occurred exactly where they would make sense: around major events like the fall of Lehman Brothers (by far the most significant peak), Greece the debt crisis and the downgrading of the US credit rating by Standard and Poor’s.
In the final version of the IAI, we used 12 definition pages, all with exceptionally high pageviews. We also use several thousand additional pages in the normalization process. In total, we used almost a billion page views to produce the monthly 10+ year IAI chart.
We had planned to create a proxy or an index of investor sentiment, but we needed an outside reference point. The Chicago Board of Options Exchange Volatility Index (VIX)often referred to as the “fear index”, is commonly used as an indicator of investor fear. We plotted the VIX next to our new creation, and the results spoke for themselves:
Over a period of almost a decade, the large-scale characteristics are very similar in the VIX and the IAI despite measuring different phenomena (stock market volatility and content consumption, respectively). It gets even more interesting when the two are layered:
Perhaps the most compelling comparison is at the very beginning of the plot. For more than a year before the peak of the financial crisis in September 2008, the IAI was profoundly high (about 120 or so – a level not reached in a single month in the last four years), while that the VIX remained subdued, around 20. In other words, based on the VIX alone, you would be caught completely off guard by the greatest financial crisis of our generation, as the IAI sounded the alarm for more than a year before the crisis hit.
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