Bear Case in European Risk: McDonald

Europe has presented systemic risk in the past few years and could end the U.S. stock rally soon, Newedge's Larry McDonald said Thursday on CNBC.

"If you think about it, the last couple of years credit spread contagion of this time of the year really hurt equities," he said. "Systemic risk out of Europe has been a problem the last three years, and I'm seeing warning signs of that now."

On "Fast Money," McDonald said that the equity market had consistently ignored credit risk over the past three years.

"All I would say is, the biggest financial institutions in Europe are massively underperforming the biggest financial institutions in the United States on a credit basis, so if you look at investment-grade credit, subordinating credit," he said.

"That tells me they're very concerned about what's happening in Italy, what's happening in Spain."

McDonald added that the market could see "elevator-shaft drops."

"I'm not that comfortable owning equities at this point," he said, adding that emerging markets was a much better value.

Josh Brown of Fusion Analytics said that European risks actually made a bullish case for stocks.

"The reason why people want to allocate to U.S. stocks is because we don't have those credit issues," he said. "No. 2, sentiment here is very different than sentiment abroad."

Trader disclosure: On March 14, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Stephanie Link is long AAPL; Stephanie Link is long GS; Stephanie Link is long CSCO; Stephanie Link is long SBUX; Stephanie Link is long GE; Jon Najarian is long JPM CALLS; Jon Najarian is long MGM CALLS; Jon Najarian is long FIG CALLS ; Jon Najarian is long KKR CALLS; Jon Najarian is long XLF CALLS; Jon Najarian is long STX CALLS; Jon Najarian is long WLL CALLS; Josh Brown is long AAPL; Josh Brown is long BAC; Josh Brown is long GDX; Josh Brown is long XLU; Josh Brown is long WMT; Josh Brown is long TGT; Josh Brown is long LULU; Mike Murphy is long BAC; Mike Murphy is long FB; Mike Murphy is long EBAY.