JP Morgan Chase & Co‘s clients have been warned by its chief global equity strategist, Dubravko Lakos-Bujas, of a potential “sudden” shock to the stock market. This warning comes in the context of a strong first quarter for stocks.
What happened: Lakos-Bujas warned investors on Wednesday about the risks associated with the current trading momentum in the U.S. stock market, Bloomberg reported. He highlighted the dangers of overcrowding the market’s best-performing stocks, which could lead to an unexpected correction.
“It could happen one day suddenly. This has happened in the past; we had flash crashes,” Lakos-Bujas said in a webinar. A large fund starts deleveraging some positions, a second fund senses this and tries to reposition itself, the third fund is basically caught by surprise and soon after we start to have ever greater momentum.”
He said various factors such as earnings, Fed expectations and the possibility of an election victory for former President Donald Trump have already been factored into the market. Furthermore, he pointed out NVIDIA Corp NVDA. And the potential of AI innovation as a primary source of positive surprise. However, he stressed that these opportunities are becoming increasingly scarce, while growing risks loom in the background.
Additionally, he observed a trend in recent history where the surge in popular titles like the Magnificent Seven is often followed by a correction. This pattern has occurred three times since the global financial crisis.
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Because matter: The stock market has performed exceptionally well, with Goldman Sachs forecasting a 15% upside for the S&P 500 by the end of 2024. The exceptional performance of mega-cap technology stocks drives this rally. However, Lakos-Bujas’ warning suggests that the current trade momentum may not be sustainable.
His concerns are in line with a general sense of caution among investors and analysts, despite the stock market’s strong performance in the first quarter of 2024. The stock market’s strong performance has prompted investors and strategists to consider potential warning signs and protective measures against an expected market correction.
Additionally, the upcoming 2024 presidential election will have a significant impact on the stock market. According to UBS, the strong political differences between the two main contenders, President Joe Biden and former President Donald Trump, could lead to significant market implications.
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