Investopedia Anxiety Index

Markets Today

Global markets are surging this morning as Russian President Vladimir Putin claimed the country has given him regulatory approval for the world’s first COVID-19 vaccine that he says was successfully used on his daughter. Whether either of those things are true or not is hard to determine, but stocks tied to an economic recovery are popping this morning. Cruise lines, airlines, oil companies and financials are all heading higher across all indexes, except China. 

Speaking of China, U.S. Treasury Secretary Mnuchin said yesterday that companies from China and other countries that do not comply with accounting standards will be delisted from U.S. stock exchanges as of the end of 2021. The U.S. will also soon require imports from Hong Kong to be labeled as “Made in China” following a notice that’s set to be published today in the Federal Register. Trade representatives from the U.S. and China are scheduled to meet (via video) on August 15 to discuss the status of phase one of their trade agreement. 

The S&P 500 is likely to cross a new record high this morning as futures point to strong gains. As we know, big technology stocks have carried the load all year. But a cyclical rotation is finally happening inside the markets where vaccine and recovery hopes are pushing stocks tied to industries that will benefit from a pick up in economic activity higher. We’ve seen this rotation attempted before over the past three months, but the momentum in the past 24 hours in these sectors seems a little stronger this time. We’ll see if it holds.

What the Index Shows

The Investopedia Anxiety Index (IAI) is a gauge 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 on Investopedia across three categories of topics: macroeconomic (such as inflation and deflation), negative market sentiment (such as short selling and volatility), and debt/credit (such as default, solvency and bankruptcy).

Background

In 2012, Seth Steven-Davidowitz published an article in the New York Times explaining how he used Google search results to uncover voter bias that pollsters were unable to find.  Investopedia has over 20 million monthly unique visitors, and with Steven-Davidowitz’s work in mind, we asked ourselves, “What can the search behavior of our readers tell us about the state of markets and the economy?”

We have the data: more than 30,000 URLs of quality content going back before the collapse of Lehman Brothers and the 2008 financial crisis. I represented the editorial team and partnered with our lead data scientist Dr. Ronnie Jansson at the end of 2015 to search for patterns in our most highly trafficked materials. We carefully selected a selection of terms on topics that suggested investor fear, like “default,” and opportunistic terms, like “short-selling.”

Finding a signal in noisy web traffic data is difficult due the varied seasonality of our readership (for instance, traffic declines on the weekends) and exogenous factors like search engine results page (SERP) rank. 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 looked at the results of the analysis the first time, we found that the major peaks 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), the Greek debt crisis, and the U.S. credit downgrade by Standard and Poor’s.

In the final version of the IAI we used 12 definition pages, all with exceptionally high page view counts. We also now use several thousand more pages in the normalization procedure. In total we used close to one billion page views to produce the 10+ year monthly IAI plot.

We had set out to create a proxy or index for investor sentiment, but we needed an outside point of reference. The Chicago Board of Options Exchange’s Volatility Index (VIX), often referred to as “the fear index,” is commonly used as a gauge 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 features 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 overlaid on top of one another:

Perhaps the most compelling comparison is at the very earliest point of the plot. For more than a year prior to the peak of the financial crisis in September 2008, the IAI was profoundly elevated (around 120 or so – a level that had not occurred in a single month in the most recent four years), while the VIX remained subdued, around 20. In other words, based on the VIX alone you would be caught completely off guard by the biggest financial crisis of our generation, whereas the IAI was an alarm blaring for more than a year before the crisis hit.