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Stock Market All-Time Highs: Sell Some?

Stock Market All-Time Highs: Sell Some? - all time high


The S&P 500 and Nasdaq just hit all-time highs. Meanwhile, measures of volatility in the Dow, S&P 500, and Nasdaq just hit their lowest levels since 2007. Volatility rises when there's uncertainty. And falls as investors get more confident.


Investors are clearly confident.


As you can see in the Chart of the Day below, 60-day realized volatility (a fancy way of saying historical volatility) hit a cycle low. "That's pulverized the bears," writes Hedgeye CEO Keith McCullough in this morning's Early Look. Just 41 days into 2017 and the Nasdaq, S&P 500 and Russell 2000 are up 6.2%, 3.3% and 1.9% respectively.

Falling Volatility: What now?

Simple. Book some gains but keep your core position in U.S. equities. Buy more on pullbacks. Why? Here's a brief synopsis with links for further reading:


And Something for the Stock Market Bears...

If you’re looking for a fundamental stock market correction catalyst, the first big one is in April when we get first quarter GDP. 


(Click here to learn more about subscribing and how to position for a potential correction.)

Cartoon of the Day: Animal Spirits

Cartoon of the Day: Animal Spirits - NASDAQ giraffe 02.09.2017


The S&P 500 and Nasdaq hit fresh all-time highs today.



Click here to receive our daily cartoon for free.

3 Reasons To Sell Lazard: Risks, Complacency & Highly Cyclical | $LAZ

3 Reasons To Sell Lazard: Risks, Complacency & Highly Cyclical | $LAZ - short laz black book


The Hedgeye Financials team will be hosting a black book conference call to add Lazard (LAZ) to their Best Ideas list as a short on February 14 at 11AM ET. The presentation will outline the still unrecognized risks and complacency in this highly cyclical company.


  1. M&A Set to Comp Lower: After a new high water mark in global mergers and acquisitions in 2015, 2016 was a down year but the Street is expecting a reacceleration in '17 and '18. Estimates are still too high based on "flat to up" activity levels for the New Year which ignores the slow start to 2017.
  2. Article 50 risks a fumble: We think that anything but a smooth handoff on Brexit puts at risk the important UK market for Lazard. With the operating landscape in England subject to a 2 year reorg via Article 50, we are expecting a slough off in deals with uncertainty of the operating landscape.
  3. Active Managers under duress: While the company does have a niche in emerging markets and infrastructure, the active management business is under duress and gone are the days of even mid single digit growth. Staying long LAZ stock at this point, is in essence a short US dollar position because the company's AUM division does better when the US currency is weak.


Please note if you are not a current subscriber to our Financials research there will be a fee associated with this call. Ping sales@hedgeye.com for more information.

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Alpert: The U.S. Economy 'Will Go Crazy' If Trump Does This


“The virtuous cycle of capital has broken down,” says Dan Alpert, Managing Partner at Westwood Capital in this new edition of Real Conversations.


That’s not hyperbole. Alpert wrote the book, “The Age of Oversupply.” In it, he argues that a global labor glut, excess productive capacity, and a rising ocean of cheap capital have kept the economies of the first world (notably the United States) mired in underemployment and anemic growth.

What is The Age of Oversupply 

In the “age of oversupply,” companies are unlikely to reinvest profits due to all this excess capacity. “When you have a global capital glut, capital starts to back up and say ‘Geez, you know I can’t make a dime taking risk free returns anywhere,’” Alpert says.


As a result, instead of reinvesting profits in their businesses, companies buy back stock and purchase competitors. Money finds its way into equity markets rather than factories, equipment, and more manpower.


“You don’t need additional primary investment so that capital becomes hyper activated in the secondary markets,” Alpert says in the video interview above with Hedgeye CEO Keith McCullough.


Sound familiar?


That’s why the $24 trillion worth in central bank asset purchases globally have been a drop in the bucket. Growth in productive capacity has been anemic so global economic growth continues to slow. According to the IMF, global growth for 2016 is expected to be 3.1% versus 3.2% in 2015. Advanced economies fared even worse, posting 1.9% growth versus 2.1% in 2015.

A $1 trillion Solution: Infrastructure Spending

There’s hope. In the video interview above, Alpert suggests a solution that the Trump Administration is already predisposed to endorse:


“If you have a massive glut of capital and it’s not flowing back into the U.S. economy in the form of productive plants and equipment, you really ought to take it using the agency that can borrow it cheaply, the U.S. government. Use it to pull up wages by reemploying a large number of steel workers, and construction workers and all of the support industries to rebuild our domestic infrastructure that is the shot in the arm that this country requires.”


On the campaign trail, President Donald Trump proposed $1 trillion in infrastructure spending. “Trump is absolutely right on about the need for an aggressive infrastructure program in the U.S.,” Alpert says.


The reason this stimulates economic growth is relatively simple to understand, Alpert says. By increasing the demand for skilled labor at the top, you employ the underemployed and create demand for other workers to fill those vacated positions and employ the unemployed. Alpert calls this “trickle down labor demand.”


“Take the former construction worker who’s now a bartender and give him a hammer back. Well, now you need a new guy to tend bar.”


Logistics… A fiscal spending program like the one proposed by Trump are typically spread out over a period of five years, Alpert says, so $200 billion each year.


“If you spend $200 billion in this economy in additional government infrastructure spending, rebuild bridges, airports and railways, especially if it’s well targeted. This economy is going to go crazy. It’s going to do great.”


Bottom line? If Trump gets his way and passes a targeted fiscal stimulus program, the U.S. economy is “going to go crazy.”

Poll of the Day: Stock Volatility -40% Since Election Day. Bullish or Bearish?

Takeaway: What do you think? Cast your vote. Let us know.

Poll of the Day: Stock Volatility -40% Since Election Day.  Bullish or Bearish? - bulls and bears




The Trump Tracker: Stock Market Next Stop? Correction or All-Time Highs?

The Trump Tracker: Stock Market Next Stop? Correction or All-Time Highs? - trump quote image


The post-Election Day exuberance among investors is obvious to even the most tangential of financial market watchers. But is it warranted?

Inside Our Trump Tracker

#Economy #Confidence #TrumpTrain


Before we answer that question, consider the facts (in our Trump Tracker, via the Early Look's Chart of the Day). Since Election Day, Wall Street has ratcheted up U.S. economic growth expectations. In just three months, GDP estimates for the first quarter of 2017 have risen 2 basis points to 2.3%. Consumer price inflation expectations for year-end 2017 are up 2 basis points too, to 2.2%.


Measures of consumer and small business confidence have spiked dramatically since Trump's election. Many have hit post-financial crisis highs. Here are the latest results compared to pre-election October readings:


  • Confidence Board Consumer Confidence: 111.8, up 11 points 
  • NFIB Small Business Optimism: 105.8, up 11 points


Investors, consumers and small businesses alike are clearly on the Trump Train.


The Trump Tracker: Stock Market Next Stop? Correction or All-Time Highs? - Trump Tracker CoD1

Inside Financial Markets Since Election Day

#GrowthAccelerating #Commodities #SmallCaps


Then there's the post-Election Day market moves:


  • Aluminum: +29%
  • Steel: +19%
  • Financials (XLF): +17%
  • Russell 2000 Value: 15.5%
  • Russell 2000: +13.7%
  • Industrials (XLI): +9.5%
  • S&P 500: +7.2%
  • U.S. Dollar Index: +2.5%


The common thread running through financial markets is U.S. growth expectations are rising.

the U.S. Economy is Growing: Complacency or Reality?

#GDP #Inflation #IndustrialRecession


We asked recently, "Are You Bullish Enough?" and added these facts to the mix:


  • GDP: Fourth quarter U.S. GDP (year-over-year growth) came in at 1.9%, up from 1.7% in the third quarter (the second consecutive quarter of accelerating growth, since five quarters of decelerating growth to the 1.3% second quarter low.)
  • Industrial Production rose to +0.5% recently, breaking a 15-month streak of negative year-over-year growth. 
  • Durables Ex-Defense & Aircraft (household demand proxy) was +0.9% sequentially for December and improving solidly to +3.6% YoY = 3rd month of positive year-over-year growth
  • CPI: Inflation accelerated for a 5th consecutive month, taking consumer price growth to its highest level in 32-months (since May 2014) at +2.1% in December.


Sure, the stock market bears can argue that complacency has set in. Since Election Day, the VIX, a stock market volatility index, is down almost -40% to a reading of 11.43. (Volatility rises when investors are fearful of the future.) Typically, when the VIX falls this low (below 12) it snaps up. Investors book gains. Stocks fall.


But as we wrote yesterday, stock market volume has been rising on days when stocks are up and falls on down days. This confirms conviction in the market moves. Investors are buying each rally and not selling the dip.

Bottom Line

The key takeaway is simple. All of this suggests investors stay invested in the stock market.

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