Why your 401(k) is safe from a 40% crash in stocks—but not a 10% to 15% correction, top analyst says

Core Viewpoint - The current euphoria surrounding the artificial intelligence boom has led to significant concentration in the U.S. stock market, raising concerns about a potential crash similar to past financial crises [1] Group 1: Market Sentiment and Predictions - There is a prevailing sentiment among some analysts that a major selloff is inevitable, but the risk to diversified retirement accounts is considered more contained [2] - Michael Cembalest from J.P. Morgan expressed skepticism about a catastrophic 40% market drop, despite acknowledging extraordinary market valuations [2] - Cembalest highlighted that warnings from market bears often emerge when assets decline, but a correction does not always lead to a significant crash [3] Group 2: Differing Perspectives on Valuation - Aswath Damodaran warned that the market is overvalued and suggested that a 40% drop in the "Magnificent 10" stocks could trigger widespread panic [4] - Cembalest contrasted the views of finance professors with those of actual market participants, suggesting that academic perspectives may not reflect real market dynamics [5] Group 3: Financing and Market Resilience - Cembalest noted that the current AI capital spending is primarily financed through internally generated cash flow rather than debt, which differentiates it from previous bubbles that were debt-driven [6] - This internal financing structure is seen as a factor that reduces the systemic risk associated with the current AI build-out compared to past capital spending booms [6]