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Bank of America Merrill Lynch strategists are expressing an increasingly common sentiment on Wall Street — still on board the stock market train but increasingly skeptical about what's fueling the run.
In that environment, BofAML recommends high-quality bonds and financial stocks as outperformers.
"Investors may be well served by locking in some profits in U.S. stocks," BofAML said in a note.
The firm told clients this week that of the three pillars holding up the most recent leg of the eight-year bull market, two are wobbling. Only low bond yields, which are barely above the dividend yield of the , are still in place.
The other two — accommodative central bank policies and earnings growth — are fading.
The former is obvious, with the U.S. Federal Reserve and its global counterparts slowly reversing the ultra-low interest rates and ultra-high liquidity programs they had put in place after the financial crisis.
But the latter is less apparent, particularly considering corporate America is in the middle of another solid earnings season.
BofAML strategists see cracks in the profit picture. Gains ahead are projected to slow, with equity and quant strategist Savita Subramanian expecting S&P 500 bottom-line growth to decelerate to 8 percent in 2017 and 5 percent in 2018.
Perhaps more important but less visible is that companies that have beaten earnings expectations for the second quarter, in an aggregate sense, have not been rewarded with higher share prices. That's the first time that has happened since the second quarter of 2000, around the time the tech bubble was bursting.
"This could be a warning sign that equity market expectations and positioning more than reflect the good results," BofAML said in a note.
Indeed, investors this year have been building positions in stocks, and the trend is showing no signs of reversing. Stock-focused ETFs have taken in $261.1 billion this year, representing 10.2 percent growth in assets, thanks in part to eight straight weeks of inflows.
For its own part, BofAML is not bearish on the market but is wary of expecting many more gains in a year when the S&P 500 has defied expectations and risen nearly 11 percent. The firm's full-year price target for the index is 2,450, which would represent a modest pullback from the current level.
BofAML currently has a 56 percent allocation to stocks.
On the bright side, BofAML still sees the TINA — there is no alternative — trade alive. Bonds don't offer a particularly attractive alternative, with the benchmark 10-year note yielding shy of 2.3 percent while the S&P 500 dividend yield sits at 1.91 percent.
However, that hasn't stopped investors from jumping into bond funds, which have seen inflows of $236.5 billion this year, or a 5.9 percent increase in assets.
"Although we are getting more cautious on equity markets, we note that some of the best returns come at the end of a bull market, which makes the case for maintaining some presence in the market," BofAML said.
The firm has raised its cash allocation. In addition, it believes a reversing trend in the bond market will lead to high-quality corporates and munis doing better in the second half, while rising interest rates will benefit financial stocks.
WATCH: A strategist from Goldman Sachs agrees: Financials are the place to be.