Case for a correction: Why even bulls are nervous

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

Count Standard & Poor's top market expert among the bulls who have recently sounded a decidedly cautious tone.

Sam Stovall, U.S. equity strategist at S&P Capital IQ, told clients Monday that an impending interest rate hike combined with a handful of other factors will likely cause a substantial stock market drop. Specifically, he believes the likely will enter a correction phase, defined as a drop of more than 10 percent but less than the 20 percent move that would constitute a bear market.

Friday's unemployment report helped cinch the case: While the gain of 295,000 new nonfarm payroll positions emphasized a firming job market, it also brought home the reality to investors that the Federal Reserve is only months away from boosting its benchmark interest rate target.

That, according to Stovall, is almost certain to result in market tumult similar to what happened after the jobs report hit. The market plunged on the prospect of monetary tightening, a pattern Stovall said should persist at least through the early stages of Fed action.