The chief strategist of a major bank is warning investors to prepare for a reversal of overcrowded stocks on Wall Street. In the United States, the stock market has been rising almost continuously for five months, leading to discussions about whether the rise will continue or if a correction is on the horizon.
JPMorgan Chase’s chief equity strategist, Dubravko Lakos-Bujas, advised investor-clients about the potential downturn in the US stock market. He suggested that investors may find themselves on the wrong side of momentum investing as the market’s momentum begins to dissipate. Lakos-Bujas advised investors to diversify their holdings and focus on risk management.
The strategist also pointed out that there is an overcrowding of investors in top-performing US stocks, increasing the risk of an immediate correction. He warned that a sudden decrease could occur due to a chain reaction in which one large fund reduces leverage, prompting other funds to reposition their investments, causing a reversal in market momentum. Despite the S&P 500 index rising about 10.7% since the beginning of the year, JPMorgan predicts that it could fall to 4,200 points by the end of the year, nearly a 20% decrease.
Lakos-Bujas believes that strong support from company results, a healthy economy, and investment frenzy in artificial intelligence are no longer drivers for US stocks’ growth. He expressed concerns about potential risks associated with upcoming US presidential elections and diminishing upside surprises in AI-driven stocks. The strategist pointed to previous corrections in momentum-driven stocks and highlighted concerns about current market conditions.
While JPMorgan’s past forecasts for US stocks have not been accurate in the last two years, Lakos-Bujas stands by his prediction of a potential downturn in the US stock market.
