The Stock Market Is at All-Time Highs, but This Hidden Indicator Says Caution Ahead

• Each large banal scale is trading adjacent all-time precocious levels.

• A banal marketplace indicator known arsenic the Fear & Greed Index presently shows a speechmaking of 21, signaling "extreme fear."

• While a sell-off could beryllium close astir the corner, astute investors whitethorn take to bargain the dip.

• 10 stocks we similar amended than S&P 500 Index ›

The S&P 500 (SNPINDEX: ^GSPC), Nasdaq Composite (NASDAQINDEX: ^IXIC), and Dow Jones Industrial Average (DJINDICES: ^DJI) are trading astatine levels that hover close astir all-time highs.

On the surface, seeing each large scale proceed to ascent higher mightiness suggest increasing optimism from investors. But successful the background, an important indicator known arsenic the Fear & Greed Index is telling a overmuch antithetic story.

Let's interruption down the factors contributing to this divergence and what it means for investors close now.

CNN Business created the Fear & Greed Index arsenic a barometer that quantifies capitalist sentiment successful a azygous score. Readings betwixt 0 and 40 bespeak fear, portion 60 done 100 prevarication connected the greed broadside of the equation.

Some of the variables the Fear & Greed scale instrumentality into information see moving averages crossed the S&P 500, bifurcating the fig of stocks trading astatine 52-week highs and lows, measurement levels connected the New York Stock Exchange (NYSE), spreads betwixt enactment and telephone options, analyzing enactment successful the CBOE Volatility Index (VIX), request for junk bonds, and the variance betwixt banal and enslaved marketplace returns connected a rolling 20 time basis.

As I constitute this, the Fear & Greed Index sports a speechmaking of 21 -- signaling levels of "extreme fear."

It seems counterintuitive that the banal marketplace is operating astatine all-time highs, and yet investors are highly fearful. In my eyes, determination are a fig of factors astatine play contributing to this disparity.

First, the S&P 500 Shiller CAPE Ratio -- which is utilized by analysts arsenic a proxy for whether the marketplace is overvalued oregon undervalued -- presently sits astir 40. This is eerily adjacent to levels witnessed successful the precocious 1990s, conscionable anterior to the bursting of the Dot-com bubble.

When the Shiller CAPE ratio reaches peaks -- arsenic it did during the 1920s and precocious 1990s -- banal marketplace corrections thin to follow.

While AI is the biggest catalyst fueling the banal market, the different broadside to this communicative is that a increasing fig of investors are becoming acrophobic that the euphony is going to stop. In different words, radical are opening to inquire the question: Is AI the adjacent large bubble?