'Nasty' correction for stocks likely ahead: Firm

Traders work on the floor at the New York Stock Exchange.
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It has been four years since the S&P 500 posted a 10 percent decline, often referred to as a "correction." One Wall Street firm believes one is long overdue and it won't be pretty.

"A combination of downward earnings revisions and the difficulty of the banking system to turn bank reserves into money growth are among the biggest culprits" to cause a pullback, Strategas Research's Jason Trennert wrote in a report to clients on Monday. "Without some improvement in our model, a nasty correction could await."

The financial model created by Trennert, who made his name as chief investment strategist at ISI Group, looks at the three major drivers of stocks: liquidity, earnings and sentiment. The model is deteriorating, just like it did before market tops in 2000 and 2008.