Midday Report: Is the Stock Market Due for a Correction?

By Catherine Tymkiw

Political gridlock in Italy is unhinging investors.

Investors worry the results of Italy's election could wind up undermining the progress that Italy has made in overhauling its troubled economy.

"It was the worst possible outcome, feared by market participants and European policy-makers alike," said Daiwa Capital Markets European economist Tobias Blattner.

New York Stock ExchangeU.S. stocks spiraled downward in a late-day frenzied sell-off Monday. European markets followed their cue and sold off sharply early Tuesday.

CNNMoney's Fear & Greed Index tumbled into neutral -- a level it hasn't touched in two months. It bounced out of neutral into greed but is still sharply down from the extreme greed level it was sitting in just two days ago.

Feed and Greed Chart

The volatility sent the market's other fear gauge, the VIX, up 35% in one day. The VIX has surged more than 54% over the past five days, though it was also easing a bit on Tuesday.

As investors fled riskier stocks, they poured back into the safe havens of U.S. Treasuries and gold. The yield on the 10-year Treasury note slid further below 2% and gold prices are back above $1,600.

It wasn't all that long ago that Italy was on the brink of seeking a bailout. If the current gridlock can't be broken, investors worry Europe's debt crisis could roil global markets.

Investors were already getting worried about the bull market. Since the start of the year, they've returned to stocks but the pace of inflows has slowed considerably in recent weeks. At the same time, bond funds continue to be favored, with billions of dollars flowing into bond mutual funds weekly.

Still, even with the Italian wall of worry, bond yields have a ways to go before hitting a new record low and stocks are still up 5% to 6% this year. And the volatility of the VIX may continue but, at 19, it's also a bit away from its fear trigger level of 30.

And consider this. The last time, CNNMoney's Fear & Greed Index was in neutral, investors were worried about the economy falling off the fiscal cliff. This time around, they aren't worried about Friday's looming deadline for forced budget cuts, or sequestration. Most think it's just a matter of time before lawmakers reach a deal.

More from CNNMoney:
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8 Comments

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engplb

Fed putting 85000 million per month QE3 not if but when

February 26 2013 at 10:08 PM Report abuse rate up rate down Reply
phantom

Crash! Crash! Crash!

February 26 2013 at 9:18 PM Report abuse rate up rate down Reply
phantom

Crash! Crash! Crash!

February 26 2013 at 9:18 PM Report abuse rate up rate down Reply
Artie

Another useless none news item. The market goes up and down folks. However, over the long haul and historically it has gone up. This conjecture about "corrections" only interest chartists, market timers and wise guys. Many (if not most) of whom are unsuccessful on any consistent basis.

February 26 2013 at 9:00 PM Report abuse rate up rate down Reply
fred

Same old proverbial question/answer: Does a wild bear sh*t in the woods?

February 26 2013 at 8:33 PM Report abuse rate up rate down Reply
1 reply to fred's comment
Craig

Just wait until the bears run on Wall Street, you'll see the woods aren't the only place.

February 27 2013 at 9:17 AM Report abuse rate up rate down Reply
vlady1000

yes

February 26 2013 at 5:11 PM Report abuse rate up rate down Reply
teltech544

Is the stock market due for a correction? I hope so. A big correction down would be great. I only have so much to spend so buying at these high prices sucks. Can't make any good money. Let if fall. Hard for all I care.

February 26 2013 at 4:41 PM Report abuse rate up rate down Reply
jwm347

There's nowhere really to place your money except in the stock market

February 26 2013 at 3:31 PM Report abuse +2 rate up rate down Reply