The chief strategist of the major bank predicting the weakest stock performance on Wall Street urges investors to prepare for a reversal of overcrowded stocks.
In the United States, the stock market has risen almost continuously for five months. Talks have intensified on the market about whether there is still room for the rise to continue or whether there is a break in the rise or a downward correction.
News agency According to Bloomberg banking giant JPMorgan Chasen chief equity strategist Dubravko Lakos-Bujas warned its investor-clients on Wednesday that the US stock market could turn down quite unexpectedly. Bloomberg tells about it.
According to Lakos-Bujas, investors may soon find themselves on the wrong side of momentum investing when the momentum that drove the market finally begins to dissipate. He urges investors to diversify their holdings and think about their risk management.
According to Bloomberg, the chief strategist also reiterated his previous warning that there is an overcrowding of investors in the best-performing US stocks, raising the risk of an immediate correction.
“It can just come from behind a tree one day. This has happened before, we have seen flash crashes,” Lakos-Bujos said, according to Bloomberg.
He described that the decrease could be caused by a chain reaction, where one large fund would start reducing its leverage, the next fund would hear about this and start repositioning its investments, and the third fund would be surprised. According to him, this could lead to increasing momentum, i.e. a reversal of the speed that drove the market up.
A grim prognosis
Since the beginning of the year, the S&P 500 index, which includes shares of large US companies, has risen by about 10.7 percent before Thursday. The index has risen to 5,248 points.
JPMorgan has predicted that the S&P 500 index could end this year at 4,200 points, a level that was exceeded shortly after the lows at the end of last October.
The forecast is the bleakest on Wall Street. Its realization would mean a decrease of almost 20 percent from the current index reading. In March, the general line of the strategists’ target levels for the S&P 500 has already risen to almost 5,000 points, which is also still clearly below the current number of points.
In recent months, the US stock market has received strong support from the strong results of companies, the healthy US economy, the interest rate cut hints from the central bank Fed, and the investment frenzy that has intensified around artificial intelligence.
However, JPMorgan’s Lakos-Bujas now finds these drivers worrisome, as he believes that a lot of good things to come have now been priced into the shares. In these, he referred not only to the results and interest rate expectations, but also to the Republicans Donald Trump’s to a possible victory in the US presidential election next November, which he stated was interpreted as good for the market.
In the artificial intelligence craze, which has been driven especially by the chip company Nvidia’s shares to a huge rise, Lakos-Bujas sees the upside surprise reduced, and according to him, there are also more risks than before in the background.
According to Bloomberg, the chief strategist also pointed to the fact that investors’ rush to stocks with great momentum, such as the Magnificent 7 group of stocks now formed by large technology companies, has led to a correction in the past. He pointed to the declines in Tesla and Apple shares seen this year as examples of what could be coming.
“Who will be next – and when?” he asked.
Bloomberg notes that JPMorgan’s forecasts for U.S. stocks have failed in the previous two years. Lakos-Bujas and his colleagues remained bullish in the bear market of 2022 and predicted a decline last year, when the S&P 500 index rose 24 percent.