Watch out for a cascading ‘flash crash’ in stocks as everyone piles into the market’s hottest names: JPMorgan

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  • A stock rally could come without warning, JPMorgan’s Dubravko Lakos-Bujas said in a webinar.

  • The concentration is so high that if one major fund pulls out, it could cause a broad market fallout.

  • Cracks are already visible as Apple and Tesla shares fall.

The five-month stock rally could unravel without warning, Dubravko Lakos-Bujas said in a JPMorgan webinar on Wednesday.

While it is unclear when this could happen, the extreme market pressure has positioned stocks for a sharp correction, the bank’s chief global equity strategist warned.

“You may not need a catalytic converter, it could just come out of nowhere one day and this has happened in the past, we’ve had flash crashes,” he said.

“One big fund starts taking some positions, a second fund hears about it and tries to reposition, the third fund basically gets overwhelmed, and before you know it, you start to get more and more momentum,” says Lakos. -Bujas said as an example.

Not only is this a bleak outlook for highly concentrated big tech companies, but it would also mean a broader market fallout, he added, as the success of top stocks like Nvidiais a driver of a broader rally.

As investors continue to chase big, quality names, cracks are already showing in this high-momentum trade, he said, noting Apple And Teslas slide. Although both companies belong to the leading ‘Magnificent Seven’ stock cohort, they are down both 11.9% and 30.69% this year.

According to Lakos-Bujas, current crowd levels have only been reached three times since the 2008 crash, often before a correction.

“Every time there was this kind of crowding, it was a matter of, maybe not…

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