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Yesterday, in a presentation to investors, Dubravko Lokas-Bujas, JP Morgan’s Chief Global Equity Strategist, called for an “out of the blue” stock market crash to finish 2024 at 4200 – about 20% below current levels. The reason he gave is that investors have piled into The Magnificent 7 – which have been the engine behind the markets frenetic rise – and some catalyst will cause them to all rush for the exits at the same time.

That is one reason why the market will soon hit an air pocket. The other is that monetary policy acts with a lag and will hit the economy shortly. Historically, when the Fed hikes rates so much, it causes the economy to roll over into a recession. The lack of impact on the economy so far this time around has caused many to assume it’s not coming, But it is. There are extremely sound economic reasons why tightening the money supply so much slows down the economy. It’s not different this time.

The fact that nobody – or very few – sees a crash coming is not a reason against this position. Few saw the good times ending in October 1929, October 1987, March 2000, July 2007 or November 2021. In fact, most everybody was uber-bullish at the top. This is what the French sociologist Gustave Le Bon called the law of the mental unity of crowds in his book The Crowd: A Study of the Popular Mind: “The sentiments and ideas of the persons [in a crowd] take one and the same direction.” But there are always a few who see what the many cannot.

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