JPMorgan Chase & Co's clients have been warned by its chief global equity strategist, Dubravko Lakos-Bujas, of a potential "out-of-the-blue" shock to the stock market. This warning comes amid a strong first quarter for stocks.

What Happened: Lakos-Bujas cautioned investors on Wednesday about the risks associated with the current momentum trade in the U.S. equities market, reported Bloomberg. He highlighted the dangers of excessive crowding in the market's top-performing stocks, which could lead to an unexpected correction.

"It just might come one day out of the blue. This has happened in the past; we've had flash crashes," Lakos-Bujas said in a webinar. One big fund starts de-levering some positions, a second fund hears that and tries to reposition, the third fund basically gets caught off guard, and the next thing you know, we start having a bigger and bigger momentum unwind."

He mentioned that various factors such as earnings, Fed expectations, and the possibility of former president Donald Trump's election victory have already been factored into the market. Additionally, he highlighted NVIDIA Corp (NASDAQ:NVDA). And the potential for AI innovation as a primary source of upside surprise. However, he emphasized that these opportunities are becoming scarcer, with increasing risks looming in the background.

Furthermore, he observed a trend in recent history where the surge into popular momentum stocks like the Magnificent Seven is often succeeded by a correction. This pattern has occurred three times since the Global Financial Crisis.

Why It Matters: The stock market has been performing exceptionally well, with Goldman Sachs predicting a 15% upside for the S&P 500 by the end of 2024. The exceptional performance of mega-cap tech stocks drives this surge. However, Lakos-Bujas' warning suggests that the current momentum trade may not be sustainable.

His concerns align with a general sense of caution among investors and analysts despite the stock market's strong performance in the first quarter of 2024. The stock market's robust performance has prompted investors and strategists to consider potential warning signs and protective measures against an anticipated market correction.

Furthermore, the upcoming 2024 presidential election will impact the stock market significantly. According to UBS, the stark policy differences between the two key contenders, President Joe Biden and former President Donald Trump, could lead to significant market implications.

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