Finance

JPMorgan’s chief equity strategist says watch out for a chain of “flash crashes” in the stock market as everyone piles into the market’s most popular stocks


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  • JPMorgan’s Dubravko Rakos-Bujas told a webinar that a stock market rally could come without warning.

  • Concentration is so high that if one large fund began withdrawing capital, it could trigger widespread market repercussions.

  • As Apple and Tesla shares slide, cracks are already showing.

Dubravko Rakos-Bujas said during a JPMorgan webinar on Wednesday that the five-month stock market rally could collapse without warning.

The bank’s chief global equity strategist warned that extreme market congestion has caused a sharp correction in stocks, although it is unclear when this will happen.

“You might not need a catalyst, it might pop up one day and that’s happened in the past, we’ve had flash crashes,” he said.

“One big fund starts deleveraging some positions, a second fund hears the news and tries to reposition, a third fund is basically caught off guard, and the next thing you know, you start to have more and more momentum to unwind,” Lacos-Bujas gives an example.

He added that this was not only a grim outlook for the highly concentrated technology large-cap sector, but also meant wider market implications as the success of top stocks, such as Nvidiathe driving force behind the broader rebound.

He said the cracks in this high-momentum deal are already showing as investors continue to chase big, high-quality companies. apple and Tesla’s Although both companies are among the leading “Big Seven” stocks, their shares are down 11.9% and 30.69% year to date.

According to Lakos-Bujas, today’s level of congestion has only occurred three times since the 2008 stock market crash, and usually preceded a correction.

“Whenever you get such a high degree of congestion, which may not be a matter of days but weeks or a month or two, the momentum factor faces a huge left tail of slack,” he said.

With that in mind, he urged investors to start diversifying their trades to avoid getting on the “wrong side” of any coming correction.

Read the original article business insider



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