By Lenore Elle Hawkins via

One of the most important realities my colleague and Tematica Chief Investment Officer Chris Versace and I point out in our book, Cocktail Investing, is that the economy and the markets aren’t the same thing and can diverge. Put another way, the economy is like the annual seasons, while the market is more like the weather. You can have unseasonably warm winters and exceptionally cool summers.

Much of the current bull market has occurred during the weakest economic recovery in history — exceptionally warm days despite early Spring shall we say? Now the markets are exultant to see an improving economic picture in much of the world, forgetting that we are already in a market that is hot, hot, hot!

Out of the 17 trading days so far in 2018, as of Thursday’s close, the S&P 500 has closed at new record highs twelve times, gaining 6.2% since the start of the year, the best start to a year since 1987 when the market rose 11.3% in the first 17 trading days. The slope of the accelerating upward moves is steepening, which is a textbook move for the late stage blow-off top of a bull market.

Equities have reached impressively extreme measure by quite a few metrics. The charts shown here from Chris Metli of Morgan Stanley illustrate just how wild it has become with the net holdings of S&P 500 call options at the 100th percentile while the net holdings of S&P 500 puts are at the 0th percentile. Talk about lopsided sentiment!

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