What Hamptons Rentals Tell Us About the Stock Market

A summer rental home in East Hampton, NY
Source: corcoran.com
A summer rental home in East Hampton, NY

The Hamptons might be more than a summer playground for the rich and famous. It might also be your best clue about what the stock market will do over the next few months.

According to Nicholas Colas, ConvergEx's chief market strategist, a "white-hot" market for Hamptons summer rentals tells us that New York hedge fund managers are feeling confident about the market, and don't expect to see much happen this summer.

"There are some 70 listings in the [$500,000] to $900,000 range for the traditional Memorial Day to Labor Day period in the better parts of the East End," Colas wrote in a Wednesday morning note. "Think a lot of hedgies are anticipating a volatile summer while paying those prices to 'Chill Out East'? Probably not."

For Colas, these observations are confirmed by the low prices being paid for options, which show people do not expect to see much volatility. This tells us that "expectations are out there for a very quiet summer," Colas writes. Indeed, compared to this time last year, the CBOE Volatility Index—which tells us how volatile traders think the S&P 500 will be—is 40 percent lower.

Brian Stutland of the Stutland Volatility Group says that market conditions are making going away for the summer an attractive proposition. Especially because, over the course of this year, taking a bullish position and walking away from your screen has been a winning strategy.

"With this low volatility, I don't have to be as active in watching the news, because there aren't as many things to watch for," Stutland said. For that reason, "I am definitely more willing to go away this summer. I wish I had gone away for the last three months!"

After all, Stutland added, "it's been a tough environment to be a trader. The long-term investor is definitely the winner this year."

Dan Nathan of RiskReversal.com says the cause is more simple. "In Japan, people are eating more sushi and buying Rolex watches. Why? 'Cause their stock market is going up," Nathan said. "When people feel that it's easy money all around, they're going to go spend it. Thanks, Mr. Bernanke."

(Read More: Bernanke: Too Soon to Taper Bond Buys

Whatever the exact cause, brokers say there has been a great deal of tussling for Hamptons summer homes. Hamptons broker Marcia Altman, senior director at Brown Harris Stevens, confirms that the rental market has been "very strong," making renting a house for this summer much more difficult than in recent years.

(Read More: Vacation Home Sales Sizzle, Rentals Booking Fast)

Indeed, according to Corcoran broker Susan Breitenbach, who reports selling more land than any other Hamptons broker, the rental market "is much stronger than it has been in the past, in the high end especially. There's not too many homes left."

Breitenbach credits reduced economic concern for the strength. In recent years, "people were a bit stressed out because of the economy in general," she said, "but now they're more comfortable."

For Altman's part, she made no reference to implied volatility or the Federal Reserve when asked why rentals have been so hot. "The Hamptons is still the Hamptons," Altman said, "and people won't stay in Manhattan when it's 90 degrees out."

—By CNBC's Alex Rosenberg. Follow us on Twitter @CNBCOptions

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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