Bank of America warns of "too many red flags" in stocks

Bank of America's top U.S. stock market analyst called out a number of red flags she has seen emerge from the recent market run-up.

Why it matters: It's rare that analysts employed by Wall Street come close to suggesting that investors "sell." (After all, Wall Street is in the business of distributing stocks and bonds to the public. That sales job will likely be tougher if analysts at Wall Street banks are warning that prices for those securities are going to fall.)

Driving the news: Bank of America's head of U.S. equity and quantitative strategy, Savita Subramanian, published a note late Friday entitled "Too many red flags. Take profits." She wrote:

• "Our bear market signposts — the triggers that typically precede an S&P 500 peak — suggest additional caution may be warranted. Today, 70% of our signposts are triggered, in line with the average observed in prior market peaks."
• These "signposts" are market condition metrics. They include unusually high expectations for long-term earnings growth, very easy credit conditions and extreme dispersion between the performance of stocks with high and low price-to-equity ratios, to name a few.

What they're saying: "Dispersion has been most pronounced within Tech, where the spread between the best/worst performing quintiles' median stock is a whopping +120 [percentage points], the highest since Feb. 2000, which reached +130 [percentage points] ahead of the market peak of March 24, 2000," she wrote.

Yes, but: This is just one analyst's view. After Friday's market jolt — in which the Nasdaq 100 tumbled 4.8% and the SOX semiconductor index dove 10.3% — plenty on Wall Street had more reassuring things to say.

• Morgan Stanley's chief U.S. equity analyst, Mike Wilson, wrote that "in our view, a correction was inevitable and ultimately healthy if this bull market is going to extend into year-end, which remains our baseline."