The bull market is now well over eight years old. Some investors have grown worried that no major policy changes have come out of Washington, D.C., since President Trump took office. Other investors remain convinced that stocks are still heading higher, and there is that five-year history that has shown how equity investors are able and willing to buy the stock market into any major sell-off — or even a minor sell-off for that matter.

Merrill Lynch’s key RIC Report for July recommends that investors should lock in some of their gains from the stock market. The firm even went a step further, suggesting that equity investors rebalance their holdings to underowned sectors and also to hold above-average cash balances.

For that move to higher cash, Merrill Lynch reduced its allocation to stocks, particularly in small cap value and in emerging markets. This is no massive flight to quality here, as the firm is not increasing its allocation to bonds, and it expects Treasury yields to rise during the remainder of 2017.

The team noted that a lack of policy action out of Washington has been little impediment to stocks. The S&P 500 is up 9.5% so far in 2017 on a total return basis, which includes capital gains and dividends. Technology was up almost 18%, and health care was up about 16%.

There is a warning for second-quarter earnings growth. Merrill Lynch noted that S&P 500 earnings grew at a 15% rate versus last year and that sales also grew by more than 7%. The team pointed out that those growth numbers were exceptional for a slow-growing economy, but the firm believes that it is unlikely that the coming quarterly earnings are going to stack up well on a relative basis.

Again, the weighting for emerging markets and small cap value were cut to an Equal Weight rating from a prior Overweight. Emerging markets gained more than 18% in 2017, and they were up over 29% since Merrill Lynch moved up to an Overweight back in May 2016. The overweight view for small cap value had been around the firm’s belief that the group would be the best positioned to benefit from the pro-growth policies and tax reform under the new administration.

As far as the cash allocation boost rather than into bonds, the Merrill Lynch team noted that the world’s major central banks have shifted into more of a hawkish bias recently, despite the weaker inflationary pressure. It was also noted that central banks are now heading toward removing liquidity (quantitative easing) at a time when there are lofty valuations and narrow market breadth.

Before hitting a panic button, note that Merrill Lynch does remain “overweight” versus its benchmark in equities. While the S&P 500 index is now within a few points of the firm’s year-end target, slowing earnings growth, high valuations and reduced central bank-fed liquidity are likely to act as a drag on the stock market.

There was a note in the RIC report showing that the Federal Reserve’s balance sheet unwind could push yields higher. This could even lead to an underperformance of low-quality securities.

Conservative investors saw only a 1% drop in the equity allocation to 22%, with bonds at 52% and cash up a point to 26%. Other investor groups had just a 2% drop to their equity allocations, as follows:

• Moderately conservative to 39% from 41%
• Moderate to 56% from 58%
• Moderately aggressive to 72% from 74%
• Aggressive to 87% from 89%

Investors sometimes get spooked when they see equity market allocations get shaved down. That being said, this represents a very minor trimming of the equity market allocations for the rest of 2017 in Merrill Lynch’s strategy report. If you consider that the current market is just under all-time highs and that the bull market is more than eight years old, trimming a small portion of equity allocations to lock in some gains might sound pretty smart.

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