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Professional investors see the stock market higher than it should be and likely to lose one of its key supports, according to a closely watched sentiment gauge.
A net 46 percent of respondents to the latest Bank of America Merrill Lynch Fund Manager Survey consider stocks "overvalued," the biggest gap ever recorded in the survey, which dates to the mid-1990s.
At the same time, investors are lowering their expectations for corporate earnings, which have been strong this year and helped give the bull market fresh legs. A net 33 percent believe profits will improve over the next 12 months, which is down 25 percentage points in 2017 and at the lowest level since November 2015.
Corporate America is coming off a strongly positive earnings season, with bottom-line profits on track to grow 10.2 percent as 73 percent of companies topped analyst expectations, according to FactSet. That comes after first-quarter growth of nearly 14 percent.
The current outlook is for respective 5.2 percent and 11.2 percent gains in the final two quarters of the year. However, the earnings beats aren't doing much good — companies that are topping estimates actually have seen slight price declines in the ensuing days after reporting, something that hasn't happened in six years.
"Investors' expectations of corporate profits have taken an ominous turn this year, which is a warning sign for equities over bonds, high yield over investment grade, and cyclical sectors over defensive ones," Michael Hartnett, chief investment strategist at BofAML, said in a statement "Further deterioration is likely to cause risk-off trades."
The turn in fund manager sentiment comes amid a bevy of warnings from big market names that there's danger ahead.
Hedge fund titan Ray Dalio recently advised buying gold as geopolitical risks rise; bond guru Jeff Gundlach is betting the market loses ground by the end of the year; and former Fed Chairman Alan Greenspan told CNBC that a bond market collapse looms that will pull stocks down as well.
Yet the market has paid little heed to the doom and gloom. The S&P 500 is up a healthy 10.1 percent for the year, the Dow is hovering around 22,000 and the Nasdaq tech barometer has surged 17.8 percent.
Indeed, despite all the caution in the market, 42 percent of BofAML survey respondents see a "Goldilocks" scenario of faster-than-normal growth and low inflation. Also, a net 49 percent believe a recession is unlikely in the next six months.
Raymond James strategist Andrew Adams pointed out Tuesday that the market has recovered from last Thursday's aggressive sell-off, demonstrating that "in secular bull markets, surprises generally come on the upside."
"The positive reaction is also in keeping with our belief that this market likely has a fairly high floor that will prevent the major correction so many investors fear right now, as 'buy the dips' continues to be a winning strategy," he said.
BofAML's own strategists believe the market has exhausted its gains for the year, in large part because of earnings pessimism and tightening central bank policies. The firm has a 2,450 target for the S&P 500, which would represent little change from the current level.
WATCH: Not everyone on Wall Street is bearish. Here's someone who sees stocks as a "buy."