Markets have a way of generating their own narratives to fit recent price action. Such is the case right now as suddenly optimism couldn't be more palpable. After all, Trump has all the answers and his plan to rebuild America and 'make it great again' is sure to stimulate economic growth and continue to lift stock prices to higher highs. 

Right?

At least for now that's the narrative which matches a U.S. stock market which makes new highs virtually on a daily basis. However, on the other hand it's not hard to quickly see that investors have created a precarious situation chock full of complacency as the year draws to a close. Here's what I mean:

  • One of the clearest indications of complacency among market participants is a low ratio of put options to call options. The total put/call ratio is the lowest it has been in more than 3 years.
  • Insider selling is off the charts the last couple of weeks:
  • The VIX is currently sporting an 11 handle as options traders factor in a low probability of equity market volatility over the next 30 days.
  • The Barron's cover 'indicator' has lost some of its power during the last several years, however, it still serves as an effective sampling of market sentiment. If this week's cover doesn't scream "complacency" then I don't know what does...

And I could go on and on. You get the point. While I'm not saying to go in and dump all your stocks and short the S&P 500, I am urging a strong dose of caution and lightening up on equity exposure and/or adding some hedges to your portfolio is probably a great idea.

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