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Bank of America's recession warning: This market is scary

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BofA: This market is 'scary'

There's a chilling trend in the market, and it could wreak havoc on your portfolio, a top market watcher said.

"We are seven years into a full-fledged, all out, central bankers doing everything they can to stimulate demand," Bank of America-Merrill Lynch's head of U.S. equity and quantitative strategy Savita Subramanian recently warned on CNBC's "Fast Money. "

"We looked at all of these indicators that have been pretty good at forecasting recessions and we extrapolated that if they follow the current trends they're on, we're going to hit a recession sometime in the second half of next year."

The most unsettling thing is that this recession risk isn't discounted into the market at these levels, according to Subramanian.


The S&P is 1.8-percent away from its intraday all-time high of 2,193.81, hit on August 15. Subramanian's year-end 2016 price target is 2000, about seven percent lower than where it's trading today. And, if she's right, it's about to get a lot worse next year.

"What scares me is the market been so fragile. So, remember what happened in January? We got a whiff of bad news and all of the sudden the market is at 1800," she said—a move that augured poorly for the near-term.

"I think that speaks to the reaction function of the market. There are a lot of itchy trigger fingers. There's lot of violent trades that can really roil a fairly complacent environment."

Even though Subramanian acknowledged there's a lot more risk than reward at this point, she says the health care and technology sectors look the best right now.

"They are both pretty cheap on a relative basis," she said.

"Health care has taken it on the chin because of Hillary [Clinton] risk and fears that the M&A cycle is over," she said, referencing the 2016 elections. Some sector analysts perceive Democratic nominee Hillary Clinton as a risk to the sector, mainly because of her stances on drug companies and health care.

It's now trading at almost the lowest multiples we've ever seen, " Subramanian said. "But, meanwhile it actually has good growth."