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CEOs are losing faith in the U.S. economy

Myles Udland
Markets Reporter

CEOs are losing faith in the U.S. economy.

According to the latest CEO confidence index from trade publication Chief Executive, CEOs now have their lowest confidence in business conditions for the next twelve months since October 2017.

And the litany of concerns should be familiar to those tracking the decline in economic sentiment we’re seeing expressed by investors and now executives — the trade war, rising interest rates, and a broad concern that we’re at the end of the economic cycle.

Polled at the time of the midterm elections, CEOs told Chief Executive that while they feel good about the strength of the current business climate, their confidence in the next 12 months continues to waver due to the ongoing trade war, talent shortages, the Fed’s tightening of interest rates, end-of-cycle fears and the potential problems related to divided government in Washington,” Chief Executive said in its report. 

Over the weekend, we noted that some strategists have seen the market action since early October as a sign of investors exiting a 2018-type mindset in which strong earnings and economic growth were seen as tailwinds and rising rates just a periphery concern. Now, rising interest rates and the end of the economic cycle are seen as headwinds for financial markets, while stellar quarterly earnings — earnings grew 25.7% in the third quarter for S&P 500 members, according to data from FactSet — are no longer enough to bolster investor confidence.

A mural of a coal miner stands in an empty storefront as signs advertising vacant apartments and stores hang in the windows along the main business street in Cumberland, Ky. (AP Photo/David Goldman, File)

Comments from CNBC’s Jim Cramer late last week about what he’s hearing from executives about fears over the health of the markets and the U.S. economy also helped fuel the growing narrative that the stock market is sniffing out something is wrong with the U.S. economy despite continued forecasts from economists and policymakers that the expansion will continue indefinitely. Federal Reserve Chair Jerome Powell said in early October he thinks the economic expansion could continue “indefinitely.”

Stocks on Monday were lower across the board with the high-flying tech names we’ve seen under pressure for almost two months now at the heart of the market’s decline. Reports from The Wall Street Journal about internal turmoil at Facebook (FB) and a sharp drop in iPhone production plans from Apple (AAPL) continued the rolling waves of negative news dogging two of the market’s biggest winners during the post-election rally.

With Monday’s drop, Apple is now more than 20% off its all-time high while Facebook shares are down nearly 40%. All five FAANG names — which includes Alphabet (GOOGL), Amazon (AMZN), and Netflix (NFLX), alongside Facebook and Apple — are now down more than 20% from their highs hit earlier this year.

“Over the past several months, it’s become apparent even to the casual observer that the US equity market is acting differently,” Morgan Stanley equity strategist Michael Wilson said in a note published Monday. “Our view is that the market is sniffing out an earnings recession and a sharp deceleration in economic growth — something we have written about extensively.”

And while a number of economic indicators — GDP, consumer confidence, manufacturing surveys — point to a continuing economic expansion, it seems that the market’s economic message is starting to make its way to the C-suite.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland