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  • The risk-asset sell-off that has rocked global markets is recalibrating the positive catalysts for the stock market, and Bank of America Merrill Lynch says only one major driver is left.
  • A BAML survey of almost 200 fund managers shows that they’re still their most bullish on corporate earnings since 2011.

The stock market‘s sudden bout of turbulence has left it without many allies.

Bank of America Merrill Lynch says matters have gotten so dire, in fact, that equities are now stuck depending on just a single driver: corporate earnings.

Not that this is such a bad thing on the surface. After all, companies in the benchmark S&P 500 have grown profits for seven straight quarters, and they’re now expected to see full-year expansion of 11%. Not to mention the almost 200 fund managers surveyed by BAML are their most bullish on earnings since 2011.

The problem is more with what catalysts have disappeared, BAML says. That most notably includes low interest rates, which the firm says are “slowly reversing” amid monetary tightening from the Federal Reserve.

This chart supports the idea that corporate profits are the last remaining beam of support for the stock market, with both earnings expectations and cyclical stock performance sitting near multiyear highs.

2 13 18 cyclicals and earnings expectations COTD

At this point, however, it may be too early to talk yourself back into a bullish stance on stocks. BAML’s Bull & Bear indicator is still firmly locked in “sell” territory, though the reading is slightly less bearish than it was one week ago.

The firm’s data shows that equity traders scaled back exposure to the market — but not enough to cause the sell signal to abate. Cash levels for fund managers surveyed by BAML rose to 4.7% from 4.4%, which accompanied a 12-percentage-point drop in equity allocation — coming up short of the 16-percentage-point drop that would’ve signaled the end of the risk sell-off.

Fund-manager activity on the bond side of the equation is also notable, with investors cutting their allocation to its lowest since 1998. Considering that 60% of survey respondents blamed inflation and bonds for the crash in risk assets, this is an unsurprising shift.

Given the decline of interest in bonds, these fund managers are likely to want to move back into equities once they feel that market turbulence has subsided. But how bullish can they be with just one major tailwind at their backs? Stay tuned to find out.

SEE ALSO: It’s make-or-break time for a group of investors once left for dead

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