Illustration: Aïda Amer/Axios

For much of the year, equity bulls bought stocks on even the faintest hint of good news about companies or the economy, pushing U.S. indexes to new all-time highs despite a slowing economy and negligible earnings growth.

Why it matters: But with the S&P 500 approaching 20% gains for the year and no real signs of growth to be found, a spirit of pessimism and increased caution looks to be gripping the market.

What's happening: Stocks have been driven higher by 3 main catalysts: hope for a resolution of the U.S.-China trade war, expectations for easier central bank policy and a strong American consumer. It's still possible that all 3 come through to boost asset prices this year, but downside risks have come to overpower optimism in recent weeks.

  • The trade war is having a clear impact on not just manufacturing, but business and consumer confidence as well as capital expenditures and investment.
  • Data shows countries around the globe are seeing slowing GDP growth, with some going into reverse, including in Germany and the U.K., 2 of the world's 5 largest economies.
  • Extremely loose global central bank policy is failing to offset the negative impacts of slowing trade, growing uncertainty and weakening population demographics.

What they're saying:

  • "The disappointing data is only fanning long-standing fears of slowing global growth," Alec Young, managing director of global markets research at FTSE Russell, wrote in a note to clients.
  • "And with U.S.-China trade expected to produce little in the way of near-term breakthroughs, investors continue to favor countercyclical, defensive stocks with high dividend yields as weak data pushes interest rates ever lower," Young said.
  • “Fed rate cuts are not likely to fuel equities higher as they did in the 1990s,” UBS equity strategist Francois Trahan said in a note.
  • “The Fed-easing rallies of the 1990s were made possible by a strong inverse correlation between interest rates and [price-to-earnings ratios]. This relationship no longer exists today,” Trahan added.

The big picture: While most economists caution they are not expecting a global or U.S. recession in the next year, there is little on the horizon in the way of good news.

  • Third quarter corporate earnings are expected to be negative for the second quarter in a row and likely will slump again in the fourth, analysts say.

The bottom line: U.S. equity investors are now seeing a brand new stock market. In this market, traders sell companies with bad balance sheets and no profitability plans, and the market goes down when leading economic indicators point toward recession.

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