One Wall Street's indicator of risk appetite shows the tech sell-off has made investors a lot more cautious

  • A Wall Street indicator of risk appetite shows investors are lot less confident than they were last week, before the tech sell-off. 
  • CNN Money's "Fear & Greed Index" fell from a reading of "extreme greed" last week, to "neutral". 
  • Tech stocks sold off sharply over the past few days after weeks of solid gains. 
  • Most analysts expect stocks to continue to correct lower after having posted record highs just last week, but see no bear market in sight.
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Wall Street bulls have turned a lot more cautious this week, after a three-day sell-off in the stock market led by the technology sector caught a lot of investors by surprise.

CNN Money's "Fear & Greed Index", which measures which of these two emotions is driving investors at any given time, has subsided into "neutral" territory for the first time in around two months. 

A reading of between 0 and around 45 reflects "extreme fear" and gradually abates to "fear" and then "neutral", while a reading above 55 indicates "greed" and becomes "extreme greed" above roughly 75. 

Just a week ago, the index, which is compiled using seven market-based indicators, was at 76, giving an "extreme greed" reading. At the start of 2020, when investor sentiment was buoyant over the prospect of a trade truce between the US and China, this reading was closer to 100, while in March, at the height of the coronavirus crisis, it barely held in single digits.

Read moreFred Stanske uses the insights of Nobel winner Richard Thaler, the 'father of behavioral finance,' to beat the market with under-the-radar stocks. Here's how he does it – and 2 picks he's buying for long-term gains.

The index had been flashing "extreme greed" for well over a month, as benchmark US indices hit record-highs, led predominantly by the technology sector, but also fueled by growing confidence in the resilience of the economy to recover from the pandemic. 

On Wednesday, the S&P 500, and the Dow 30  and the Nasdaq staged a recovery, after three days of losses drove the indices to their lowest in around a month. The tech sector, led by electric vehicle maker Tesla, bore the brunt of the selling earlier in the week, with Apple, Amazon, Microsoft, Google parent Alphabet and Facebook, all sliding. 

A number of prominent market-watchers, including Swiss investment bank UBS and Goldman Sachs, have billed the drop as little more than a healthy correction to a market that had hit record high after record high this year. 

Read more: 4 experts break down the drivers behind the sudden plunge in tech stocks that's dragging the entire market lower – and share their best recommendations for what investors should do as the election approaches

The S&P 500 closed at an all-time high of 3580.84 on September 2 before the sell-off happened. 

Read moreFred Stanske uses the insights of Nobel winner Richard Thaler, the 'father of behavioral finance,' to beat the market with under-the-radar stocks. Here's how he does it – and 2 picks he's buying for long-term gains.

 

Market strategist Jim Bianco told CNBC on Tuesday that the stock market was in the middle of a 10% to 15% correction, the worst since March, and that it may be too early for investors looking for a discount to dive in.

But Milan Cutkovic, market analyst at broker AxiCorp thinks any downward correction in tech stocks is likely to be short-lived, as reflected by the Fear and Greed index's "neutral" reading this week.

"There is currently no panic, and some investors see the latest downturn as a healthy correction after several of the tech giants reached staggering heights. The current sell-off will far more likely end up being a temporary setback rather than the beginning of a trend change," Cutkovic said. 

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