It might be time for Wall Street's relentless Trump rally to finally take a breather.
The Dow has surged 13% since President Trump's election, but a growing number of investors are worried stocks have gotten ahead of reality.
Among fund managers, 34% say stocks are "overvalued," according to a Bank of America Merrill Lynch survey released on Tuesday.
That's the highest level in the 17-year history of the survey, which polled 165 fund managers who control $500 billion in assets.
Eight in 10 fund managers polled by BofA argue that the U.S. is the most overvalued region around the world.
The findings argue for a "risk rally pause in March/April," according to Michael Hartnett, BofA's chief investment strategist.
Wall Street appeared to be heeding that advice on Tuesday, with the Dow retreating 200 points. The Dow could suffer its first 1% drop since mid-October, ending its longest stretch without a significant selloff since 1993.
A growing number of market insiders have expressed concern about the elevated levels of popular valuation metrics.
The S&P 500 recently traded at 17.9 times forward earnings, the highest P/E ratio since 2004, according to FactSet. That's well above the five-year average of just 15.
"The fundamentals better start picking up the pace in order to justify such extended valuations," Sam Stovall, chief investment strategist at CFRA, wrote in a report to clients.
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CNNMoney's Fear & Greed Index tipped back into "fear" mode this week, a dramatic reversal from "extreme greed" just a few weeks ago.
Even Carl Icahn, a Trump special adviser and one of the president's earliest backers on Wall Street, recently told CNNMoney he's concerned the market "has run ahead of itself." Icahn is ready for a market storm, positioning his hedge fund to profit if stocks tumble.
The problem is that the Trump rally -- the Dow is up 2,400 points since the election -- is based more on expectations than fundamentals.
Investors are very excited about Trump's promises to slash taxes, roll back regulation and unleash infrastructure. Many are betting this "pro-growth" agenda will allow the American economy to escape its sluggish trajectory.
However, 60 days into Trump's term, none of those pivotal promises have come to fruition. Instead, the Trump agenda has been stalled by struggles to replace Obamacare and the dark cloud of uncertainty from the investigation into Russia's role in the 2016 election.
The biggest key is Trump's pledge for "massive" tax cuts. But tax reform is extremely complicated and there are increasing signs that it won't get done any time soon.
Just 10% of investors polled by Bank of America expect Congress to pass a tax reform bill before the summer recess in August.
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That could explain why Wall Street analysts haven't nearly matched the optimism of investors. FactSet's projections for 2017 S&P 500 earnings have actually declined in recent months.
"Eventually, earnings estimates have to start rising in order to justify investor faith in faster economic growth," Nicholas Colas, chief market strategist at brokerage firm ConvergEx, wrote in a report to clients.
Some areas of the market are running hotter than others.
For instance, optimism about OPEC's production cuts have lifted the energy sector to 28.8 times projected earnings, according to FactSet. That's easily the highest among the 11 major sectors of the S&P 500 and well above the five-year average of 24.6.
But oil prices have tumbled back below $50 a barrel this month amid concerns about resurgent U.S. crude output, especially in the shale hotbed of the Permian Basin.
Consumer staples and consumer discretionary stocks are also trading at multiples above 19 their projected earnings.
"U.S. equities can only live on hope for so long," said Colas.
