The stock market rally that has propelled equities to new heights could be on the verge of a sudden and dramatic reversal, according to JPMorgan’s chief global equity strategist, Dubravko Lakos-Bujas.
In a webinar on Wednesday, Lakos-Bujas warned that the extreme concentration in the market has left stocks vulnerable to a sharp correction, with the potential for a broad market fallout if one large fund begins pulling out.
“The level of crowding seen today has only been reached three times since the 2008 crash, often preceding a correction,” Lakos-Bujas said. “Whenever you had such a high degree of crowding it was a question of, maybe not days, but a question of weeks, or a month or two before the momentum factor faced a big fat left tail unwind.”
Lakos-Bujas pointed to the recent declines in Apple and Tesla stocks as evidence that cracks are already starting to show in the market. Both companies, which are part of the leading “Magnificent Seven” stock cohort, have seen significant drops in their share prices this year.
As investors continue to chase big, quality names, Lakos-Bujas urged caution and recommended diversifying trades to avoid being caught on the “wrong side” of any potential correction.
The warning from JPMorgan’s chief global equity strategist serves as a stark reminder that the current market rally may not be sustainable, and that investors should be prepared for a possible unwinding with no warning.
