JPMorgan says beware of a flash crash brewing in the stock market’s hottest speculative trades.
Strategists at the top bank said they’re still bullish on stocks overall, raising their S&P 500 price target to 7,800 for the full year. However, they flagged a high risk for the market to see a sudden drop in the bank’s mid-year outlook on Wednesday.
That’s because, despite “Blue Sky” conditions hanging over the market generally, the bank sees “extreme crowding” in momentum stocks, a bucket of companies that have seen a rapid price increase in 2026.
Momentum stocks have soared over the last several months, fueled by unrelenting enthusiasm for AI plays in things like semiconductors and memory stocks. Invesco’s S&P 500 Momentum ETF is up 29% year-to-date, outpacing the nearly 8% gain in the benchmark index.
The momentum ETF rally has already started to fade amid a sell-off in the chips sector, having dropped 4.5% since Monday.
Crowding has been a particular issue in “Low Quality” and “Speculative Growth” stocks, strategists added, two groups of stocks they referred to as “2nd and 3rd order AI plays.”
“Moreover, the rapidly increasing equity supply expected over the coming quarters, alongside potentially tighter monetary policy, could constrain equity multiples,” the bank said of additional risks it sees in the market.
JPMorgan’s equity strategy team also sounded a warning about a potential flash-crash in 2024, citing the risk of a sharp drop due to the market’s heavy concentration in tech stocks.
Prior to that, the bank flagged flash-crash risks in 2018, which they said could be triggered by a wave of automated selling of passive funds from institutional investors.
Still, the bank remains optimistic on stocks overall, and lifted its year-end price target for the S&P 500. Strategists now see the index climbing to 7,800 by the end of 2026, implying 5% gain from current levels.
“However, it’s important to keep in mind that the path upwards will likely be non-linear, as the market will need to clear various hurdles,” they added.
The bank said that it believes a barbell investing strategy balanced between quality growth stocks and low-volatility quality growth stocks was favorable in the current macro climate, pointing to strong finances, strong returns, and organic growth among those companies.
