JPMorgan believes the market is overheated. He named 20 stocks that are best to avoid

Investors have gotten too carried away with volatile and risky stocks, as they did during the dot-com bubble and immediately after the 2008 crisis, JPMorgan warned. Concentration in these stocks, according to the investment bank analyst, has reached a 30-year high, making the entire market vulnerable to correction. Which stocks does JPMorgan advise investors to stay away from, and which ones, on the contrary, to buy?

JPMorgan's global strategy team has warned that investors are buying up risky securities with high volatility too actively, reports Seeking Alpha. According to analysts, such a one-sided bet makes the market vulnerable to a correction. We are talking about so-called high beta - stocks with a high beta coefficient (above 1), which react more strongly to market fluctuations, the publication specifies. According to JPMorgan, the concentration in this segment has reached a historical maximum - 100th percentile. This has happened only a few times: during the dot-com bubble, immediately after the 2008 crisis and on the eve of the collapse of world markets in February 2018. At the same time, the surge in interest in such stocks was rapid: in just three months, the concentration rose from the 25th to the 100th percentile - the sharpest jump in the last 30 years.

Such overheating of the market is explained by several factors at once, JPMorgan believes: expectations of the "ideal scenario" for the U.S. economy (sustainable growth and soft policy of the Fed), fatigue from the topic of trade duties and the fact that institutional investors rushed for high yield to speculative and credit segments. "We would not continue to bet on this growth: there is no recovery in the business cycle or major monetary or fiscal policy easing behind it - unlike the post-global crisis or COVID-19 periods," said Dubravko Lakos-Bouhas, head of global asset strategy at JPMorgan. According to him, the large concentration of investors in highly volatile securities is also a worrying signal for the whole market about the growing complacency of investors in the short term.

The most overheated stocks according to JPMorgan are server and storage maker Super Micro Computer, crypto exchange Coinbase, military and civilian AI developer Palantir, energy-efficient chip maker Monolithic Power, semiconductor giant Broadcom, graphics processor leader Nvidia, memory maker Micron, hard disk drive maker Western Digital, networking equipment provider Arista Networks, processor maker AMD, PC and server maker Dell, energy company Vistra, chip industry equipment provider Lam Research, microcontroller maker Microchip, cybersecurity developer Crowdstrike, investment firm KKR, electronics test equipment maker Teradyne, chip metrology solutions provider KLA, cruise operator Carnival and electric car maker Tesla. These stocks have beta ratios ranging from 1.86 (Tesla) to 3.37 (Supermicro), the strategists said.

According to a JPMorgan strategist, low-volatility stocks now look attractive again from a risk-return perspective. The investment bank selected securities with low price and earnings volatility, high net margins and attractive dividend yields. The list included companies from the financial, utilities and consumer sectors. For example, fast food chains McDonald's and Yum! Brands, as well as consumer companies like Coca-Cola, Mondelez and General Mills. In the financial sector, JPMorgan singled out derivatives exchange operator CME Group, options exchange manager CBOE Holdings, life insurer Aflac and consulting and insurance group Marsh & McLennan. Among utility companies, the list included energy holding company Evergy, electricity provider and nuclear power plant owner Southern Co. and Duke Energy, one of the largest U.S. utilities.

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