Recent volatility in U.S. stocks has highlighted risks flagged by JPMorgan strategists—several high-flying stocks this year are now in "extremely crowded" territory. The bank identified six speculative growth stocks, including Broadcom (AVGO.US), AMD (AMD.US), Expedia (EXPE.US), Estée Lauder (EL.US), Invesco (IVZ.US), and Nucor (NUE.US), warning that their rallies are "vulnerable to reversal" in the event of major macroeconomic shocks.
Data shows the S&P 500 fell 1.2% on Wednesday, marking its fourth consecutive decline after hitting record highs last week. Tech stocks led the sell-off as investors rotated out of winning sectors—a scenario JPMorgan’s quant team had cautioned about. They noted that positioning in these high-volatility, high-risk names has reached the 99th percentile in "crowdedness," an "extreme" level that could trigger sharp unwinding requiring investor hedges.
Bram Kaplan, JPMorgan’s head of Americas equity derivatives strategy, stated, "These companies are more sensitive to shocks, exposing them to sudden repricing risks." He added that compared to many volatile stocks tied to "secondary speculative AI themes," low-volatility stocks offer "a more attractive risk-reward profile."
Since December 10, Broadcom has plunged over 21%, AMD dropped 11%, while Estée Lauder, Invesco, and Nucor also declined. Only Expedia gained about 3%. The market increasingly senses that the AI rally can no longer lift all boats, prompting investors to separate winners from losers.
This year, investors chasing AI profits have diversified beyond giants like Nvidia (NVDA.US) and Microsoft (MSFT.US) into stocks expected to benefit indirectly from the trend. JPMorgan labeled the listed stocks as "secondary speculative AI beneficiaries," noting their susceptibility to wild swings due to reliance on capital or debt markets for expansion rather than organic growth.
Kaplan suggested a straightforward strategy for clients: Buy puts on speculative stocks and build bullish positions in low-volatility names. Investors may consider shorting high-momentum stocks while going long "boring" low-volatility picks like Cigna (CI.US), Pfizer (PFE.US), and Verizon (VZ.US).
However, the multi-day slump in momentum stocks might simply reflect temporary rotation out of crowded trades rather than a structural market shift. Strong earnings from Micron (MU.US)—reigniting AI stock gains—support this view.
Alexis Mobguet, CIO of Swiss hedge fund Adapt Investment Managers, remarked, "Only real asset owners—retail investors and large institutions—can drive markets beyond short-term, shallow pullbacks. A material shift in fundamentals, like a breakdown in the AI narrative, would be needed to force liquidation."
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