Charles Payne: Fear index sends warning despite market's strong rally

Market Overview - The S&P 500 has maintained its position above the 50-day moving average for 117 days, indicating bullish momentum [1] - The VIX, or fear index, has also been above its 50-day moving average for 14 days, suggesting a potential near-term dip but also a buyable opportunity [2] Investment Sentiment - According to Bank of America's global fund manager survey, the AI bubble is identified as a significant risk factor, alongside inflation and Fed independence concerns [3] - The current market sentiment is notably bleak, with economic sentiment in the lowest quintile since 1980, which historically correlates with good forward returns [20][21] Market Dynamics - There is a notable divide in market performance, with some investors making substantial gains while others are either losing money or sitting out [5][6] - Micro-cap stocks are experiencing a hidden rally, outperforming small caps, with the Russell 2000 up 9% since the April 8 lows [11][12] Policy Impact - The tightening of economic policies has historically limited the performance of lower-cap stocks, but recent easing measures from the Fed are providing support for these stocks [10][11] - The dollar has depreciated by 10% this year, which is beneficial for smaller-cap stocks that require liquidity and lower rates to thrive [10] Sector Performance - The market is seeing broader participation across various sectors, with many sectors achieving double-digit returns, reflecting a shift from a narrow bull market [15][16] - The relative price-to-earnings (PE) ratio for the Russell 2000 is below the historical average, indicating potential value in under-owned stocks [17] Investor Behavior - The current market environment is characterized by a "wall of worry," where investor concerns about credit risks and economic downturns may actually present buying opportunities [23][24]