Why legendary investor Jeremy Grantham says the stock market superbubble is on the verge of bursting — and an epic finale is approaching
One veteran investor has a bleak market outlook, and expects a brutal sell-off ahead. Below, I break down why legendary investor Jeremy Grantham says recent rebounds in stocks have merely been a bear-market rally and the market could crash more than 50%.
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1. The "superbubble" in stocks is entering its final stages, according to Jeremy Grantham, who made a name for himself predicting a number of bubbles would burst ahead of huge crashes, including the dot-com crash and the 2008 crash.
"Prepare for an epic finale," Grantham said in a note to clients Wednesday, adding that the recent rebound in stocks marked a false dawn. "If history repeats, the play will once again be a Tragedy."
Grantham forecasted a brutal selloff in which assets ranging from stocks to properties plunge in value.
He rang a similar bell back in January, when he warned that a superbubble was about to implode and that stocks could crater 50%.
At one point in June, the S&P 500 traded 20% below its January peak, though they have since recovered some of those losses.
But even more so now than before, Grantham sees an unprecedented mix of dangerous elements among the housing market, inflation, geopolitics, and energy.
"Between COVID in China, war in Europe, food and energy crises, record fiscal tightening, and more, the outlook is far grimmer than could have been foreseen in January," he said.
While Bank of America isn't as gloom-and-doom as Grantham, the bank's analysts reiterated a downbeat outlook of a 9% drop in the S&P 500 by year-end, reiterating their view that the summer of gains since June was nothing more than a bear market rally.
"There are still no real signs of a bull market," BofA strategists wrote Thursday, also noting that indexes haven't seen the full impact of the Fed's monetary policy moves.
What comes next for stocks and do you think investors are about to see a market bubble pop? Email prosen@insider.com or tweet @philrosenn.
In other news:
2. US stocks futures rise early Friday, as global bonds fell into their first bear market in more than 30 years. Meanwhile, European stocks were also up, as data signals Russia will resume gas flows via the Nord Stream 1 pipeline as planned. Here are the latest market moves.
3 .On the docket: Global Blue Group Holding AG, Ross Group PLC, and more reporting.
4. These small-cap stocks are trading cheap and offer huge upside, according to Morningstar analysts. Here are seven under-the-radar names that belong to a select group that has crushed the broader market this year. Get the full list.
5. The stock market could retest its June low over coming weeks as recession fears weigh on indexes. It doesn't help either that the S&P 500 is entering the weakest time of the year, Ned Davis Research said. The pairing of poor seasonality with deep uncertainty means the market will be vulnerable through most of next month.
6. Germany "cannot rely in any way on Russia," Economy Minister Robert Habeck told reporters on Thursday. The EU's energy crisis continues to come under pressure, but the policymaker said his people haven't held any talks with Russia's Gazprom amid this week's gas halt. In Habeck's view, Europe's largest economy should not count on gas flows coming from Nord Stream 1 this winter.
7. Chip stocks dropped on Thursday as the US restricted sales to China and Russia. Nvidia said the US government is requiring a new export license to address the risk of "military end use" of chip technology for the two nations. Here's what you want to know.
8. The chief investment officer of a $1.5 billion firm explained how to invest in the companies that benefit from recessions. CDAM's Scott Davies said investors shouldn't overlook "compounders" that can benefit from an economic downturn and have helped him beat the market this year. These are the 10 stocks he likes right now.
9. Here's what the rest of 2022 looks like for the US housing market. It has just hit a "turning point" in home affordability, a top executive at the Mortgage Bankers Association said. Here are his top housing market predictions going into 2023.
10. Americans who have changed jobs in the last 12 months have seen their pay climb 16.1% in the year through August, ADP reports. The jump in quitters' wages far outpaced that of job keepers, who only made a 7.6% gain. The discrepancy highlights the historic gap between available workers and labor demand.
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Curated by Phil Rosen in New York. (Feedback or tips? Email prosen@insider.com or tweet @philrosenn).
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.