As major averages continue to scale new highs, one Wall Street firm believes the stock market rally is getting overdone.
Bank of America Merrill Lynch strategists are warning of "an elevated risk of correction," which implies that the market could be in for a decline of 10 percent or more. The warning, in a report for clients Tuesday, comes as stocks were again in rally mode, pushing the Nasdaq composite to a record and putting other indexes a whisker away from establishing fresh peaks.
Amid the risk-on market structure, BofAML found at least 10 trouble spots that could slow down the market's momentum. Among them: the looming presidential election, which Wall Street expects Hillary Clinton to win, though the outcome is far from settled.
Despite a cascade of bad headlines and missteps, Republican Donald Trump remains strongly in contention. In a four-way race, Trump trails Clinton by just 4.3 points, according to the latest Real Clear Politics polling average.
"This year's presidential election could come with an uncertainty shock and a slowdown in business investment," the BofAML team led by equity and quant strategist Savita Subramanian wrote.
The note mentions neither Trump nor Clinton by name, nor does it specify which outcome would surprise. However, several surveys have shown upward of 70 percent of Wall Street executives expecting Clinton to win the presidency.