Bank of America Merrill Lynch strategists are taking a more cautious stance on U.S. stocks because of slowing earnings growth and high valuations, and they say investors would be better off with more cash holdings.
The firm's strategists recommended investors in its moderate portfolio shift 2 percent from stocks into cash. While not a big reallocation, it is telling in that the strategists see U.S. equities as less attractive, and that cash is a better alternative than the bond market.
"U.S. equity valuations continue to climb and do not look as attractive as they have in the past few years. Further, muted economic growth, a stronger dollar and lower oil prices contribute to expectations for slower earnings growth," the BofAML analysts wrote.
Read MoreEarnings season is the next challenge to strategists' targets
After the shift, investors with a moderate positioning would have 64 percent in stocks, 30 percent in bonds and six percent in cash.
"We still view intermediate-term maturities as the sweet spot in the bond market, but there is not a good case for adding more exposure now. The reward for extending maturity does not look as attractive as it has in the recent past because the yield curve has flattened considerably," they wrote.
Read MoreBond market desperately seeking spring rebound
Bank of America's U.S. equity strategist Savita Subramanian noted the valuation of the S&P 500 appears elevated relative to its own historical levels and versus other asset classes, with the exception of bonds. For instance, the S&P 500's trailing P/E of 17.7 is 11 percent above the average going back to 1960.
The strategists note the S&P is only 4.5 percent away from their year-end target of 2200. "And the market has not experienced a correction in excess of 10 percent since June 2012...It seems prudent to marginally reduce exposure to stocks at this time," they wrote.
Read MoreThis sector is suddenly crushing the market
