Be cautious of the pullback in US stocks! JPMorgan Chase warns: Market concentration may lead to a collapse.
JPMorgan Chase warns of a possible pullback in the US stock market, citing excessively high market concentration that could trigger a collapse. Strategists at JPMorgan Chase suggest that with increasing stock positions, investors should anticipate a price decline. They point out that the influence of the magnificent seven giants has led to an extremely high market concentration, further widening the gap between the top 10 stocks and the next 40 stocks. They caution investors that when excitement around artificial intelligence reaches its peak, the market may reverse course.
Zhitong App has learned that JPMorgan Chase has issued a warning that after the recent rebound, the market may experience a pullback. JPMorgan Chase strategist Marko Kolanovic stated in a global asset allocation report that with the increase in stock positions, the extreme tightening of momentum has intensified, and investors should expect prices to fall. He said, "Momentum is a dynamic stock factor that changes exposure based on macroeconomic and fundamental conditions. Therefore, the market tends to become crowded, followed inevitably by a significant pullback."
He explained the impact of the "Magnificent Seven" - Alphabet (GOOGL.US), Amazon (AMZN.US), Apple (AAPL.US), Meta Platforms (META.US), Microsoft (MSFT.US), NVIDIA (NVDA.US), and Tesla (TSLA.US).
Kolanovic pointed out that when the profit margins and earnings of most companies are struggling to keep up, the "halo/spillover effect" of high interest rates and the five major LLM (Large Language Models) stocks - including Meta Platforms, Salesforce (CRM.US), NVIDIA, Microsoft, and Broadcom (AVGO.US) - is a key catalyst driving investors towards high liquidity, strong balance sheet, sustainable pricing power, and sustainable growth of high-quality mega-cap companies.
He added that the outstanding performance of the 5 LLM stocks since the beginning of the year has pushed market concentration to extreme levels, further widening the gap between the top 10 stocks and the next 40 stocks. In conclusion, he said, "Considering this relationship, along with extremely bullish investor sentiment and positions, we remind investors that when artificial intelligence excitement reaches its peak, this relationship may reverse."