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Has the market peaked?

Despite a new survey showing most fund managers think the market will peak in 2018, NYSE Trader Matt Cheslock tells CNN's Richard Quest why strong earnings might keep driving the market higher.

Posted: Apr 19, 2018 11:25 AM
Updated: Apr 19, 2018 11:25 AM

The nine-year bull market might be on its last legs.

Fifty-eight percent of global money managers surveyed by Bank of America Merrill Lynch think the stock market has already peaked or will later this year.

Despite the market mayhem of recent months, the S&P 500 has quadrupled since its financial-crisis lowpoint in early 2009.

Yet a more cautious attitude led investors to trim their holdings of stocks in early April to the lowest level since President Trump's election in November 2016, Bank of America said. The survey featured responses from 216 fund managers that control about $650 billion of assets.

"The bulls have been silenced but not defeated," Michael Hartnett, Bank of America Merrill Lynch's chief investment strategist, wrote to clients. He noted that while cash balances have risen, 39% of investors think stocks won't peak until 2019 or later.

The number one fear among money managers surveyed is that a trade war will erupt. Trump's crackdown on China's theft of intellectual property has already led to several rounds of tariffs by Washington and Beijing. China announced plans on Tuesday to place a huge import charge on US shipments of sorghum, a grain used to feed livestock.

The worry is that trade restrictions will derail the global economy and dash the confidence of businesses and consumers. Trade war fears rocked the stock market in recent weeks, though Wall Street has rebounded on hopes that China and the United States will step back from the brink.

Some analysts remain worried about trade.

"I believe it is erroneous to assume that there will be a dialing down of trade tensions," Kristina Hooper, chief global market strategist at Invesco, wrote in recent blog post. "Protectionism remains the big risk markets need to be concerned about."

Related: Stock the market! I want to get off!

Trade war or not, it's clear that the extreme euphoria of late 2017 has faded along with hopes of a global economic boom.

Just 5% of investors polled by Bank of America expect faster global growth over the next 12 months. That's down from about 40% a few months ago and the lowest since the June 2016 Brexit vote in the United Kingdom.

The IMF warned on Tuesday that, although the global economy is still on an upswing, growth will slow after 2019.

Waning economic optimism has forced investors to dial back their predictions for blockbuster profits. Just 20% of investors surveyed by Bank of America expect profits to improve over the next 12 months. That's an 18-month low.

Earnings are surging now thanks to the corporate tax cut, but that momentum will be difficult -- if not impossible -- to sustain.

S&P 500 earnings per share are projected to surge by 18.4% in 2018, according to FactSet. But that stellar growth is expected to slow to 10.4% next year.

Likewise, revenue growth is forecast to slow from 6.7% this year to 4.8% in 2019.

Related: IMF says global economy will slow after 2019

An earnings slowdown could make it more difficult for companies to pay down the debt they've piled on over the past few years. Corporate debt relative to GDP recently matched an all-time high.

A record-high 33% of investors surveyed by Bank of America think companies have borrowed too much. There was also an eight-year high in the percentage of investors who want companies to improve their balance sheets.

The bulls are hoping that the cautious sentiment among investors is just a reflection of Wall Street's messy bottoming process. After sinking into a correction and falling to a recent low on April 2, the Dow has surged about 1,500 points, or 6%. It's now back to even on the year and less than 2,000 points from the all-time high set in January.

"When the market is finding its lowest point (the bottom), the process to get there can be quite frustrating and even confusing," John Lynch, chief investment strategist at LPL Financial, wrote to clients.

Lynch is betting the stock market can still post double-digit returns this year thanks to soaring earnings and the growing economy.

"When everyone expects trouble," Lynch wrote, "it can pay to be contrarian."

Minnesota Coronavirus Cases

Data is updated nightly.

Cases: 449492

Reported Deaths: 6047
CountyCasesDeaths
Hennepin933031483
Ramsey40134741
Dakota33159344
Anoka31061365
Washington20220230
Stearns17922188
St. Louis13730242
Scott1199496
Wright11656104
Olmsted1054775
Sherburne822065
Carver696436
Clay653981
Rice610769
Kandiyohi554871
Blue Earth543233
Crow Wing484877
Otter Tail457967
Chisago453336
Benton421086
Winona390046
Douglas375766
Nobles371746
Mower367829
Goodhue349259
Polk328958
McLeod325745
Morrison312145
Beltrami311048
Lyon302538
Becker286239
Itasca285243
Isanti282941
Carlton280943
Steele27489
Pine267013
Freeborn247923
Todd232230
Nicollet225436
Brown215534
Mille Lacs214545
Le Sueur210715
Cass207723
Meeker200033
Waseca190116
Wabasha17243
Martin170826
Roseau165717
Hubbard149538
Redwood139827
Renville137540
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Dodge13544
Chippewa131632
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Fillmore12435
Wadena120117
Rock110312
Sibley10857
Aitkin108333
Faribault106716
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Pennington99715
Kanabec98018
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Murray8935
Jackson86010
Swift83518
Pope7415
Marshall70315
Stevens7018
Clearwater68514
Lac qui Parle65716
Lake64915
Wilkin6269
Koochiching59710
Lincoln4871
Big Stone4603
Unassigned43668
Grant4298
Norman4248
Mahnomen4107
Kittson37220
Red Lake3174
Traverse2523
Lake of the Woods1951
Cook1150

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 307088

Reported Deaths: 4340
CountyCasesDeaths
Polk46016457
Linn17864278
Scott15566166
Black Hawk13875238
Woodbury13040177
Johnson1216051
Dubuque11434153
Pottawattamie9047113
Dallas896572
Story871235
Webster470172
Cerro Gordo467871
Sioux456157
Clinton451863
Warren449038
Marshall428662
Buena Vista393829
Muscatine392278
Des Moines383641
Plymouth351468
Wapello346598
Jasper324059
Lee318131
Marion305752
Jones272649
Henry264831
Carroll255934
Bremer246848
Crawford232324
Washington220332
Boone219517
Benton210150
Mahaska195037
Jackson193031
Tama188758
Dickinson186227
Kossuth174844
Delaware174536
Clay169820
Wright165224
Fayette163623
Hamilton160730
Buchanan160423
Winneshiek156919
Harrison156762
Hardin155529
Cedar154219
Clayton151548
Butler149224
Page144915
Floyd139836
Cherokee139227
Mills136916
Lyon135732
Poweshiek133924
Hancock130724
Allamakee129628
Iowa126022
Calhoun12299
Grundy121626
Jefferson121325
Madison12129
Winnebago119729
Mitchell116235
Louisa115430
Cass113942
Chickasaw112212
Sac111115
Emmet110831
Appanoose110740
Union109222
Humboldt105819
Guthrie103424
Shelby103427
Franklin102718
Unassigned9410
Palo Alto90910
Montgomery86423
Keokuk85626
Howard84419
Monroe81319
Clarke7987
Pocahontas77711
Ida74730
Davis69421
Greene6947
Adair69020
Lucas6589
Monona64616
Osceola6419
Worth6133
Taylor5949
Fremont5176
Van Buren49713
Decatur4934
Ringgold44311
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Audubon4158
Adams2973
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