- Stocks have a 70% chance of crashing in a few years, legendary investor Jeremy Grantham said.
- The GMO co-founder pointed to parallels between the current market and previous crashes.
Stocks face a 70% risk of crashing in the next few years, as there's a bubble forming in asset prices on the verge of implosion, GMO co-founder Jeremy Grantham warned.
"As you know, I'm only interested in the really great bubbles, like 1929, 2000, and 2021 [which] are the three senior bubbles in the US stock market. We have checked off pretty well every one of the boxes," the legendary investor said in an interview with WealthTrack on Saturday, marking his latest warning of another epic crash due for stocks.
Grantham pointed to parallels between the current market and previous crashes, with stocks benefitting from an "almost perfect" economic environment for nearly a decade, before seeing a sharp slide downward.
He originally priced in an 85% chance the market was in another bubble on the verge of bursting, but revised that to a 70% chance, thanks to the recent tech rally fueled by investors' excitement for AI.
"I'm a little bit disturbed by the emergence of the kind of mini bubble in artificial intelligence," Grantham said, adding that he was still unsure if the excitement for generative AI was strong enough to alter the final stage of the stock market's bubble. "I suspect it already has elongated this process somewhat. There is some fairly some small chance I think it will mitigate it to such an extent that will we only have a modest decline," he added.
Over the longer term, he acknowledged that advances in artificial intelligence could pose risks to humanity, adding that he agrees with calls to regulate AI.
For now, those risks extend beyond his short-term outlook on the stock market, Grantham said.
"My guess is it's not operating on the timeframe of this bubble," he explained. "We have a year or two here to have a fairly traditional bubble losing air, a fairly traditional recession, and fairly traditional decline in profit margins — and some grief in the stock market. And we can do that before the real effects of AI kick in."
Other Wall Street experts have warned of a coming recession that could wipe out the current rally in stocks. Investors are in for a painful second half of 2023 as a downturn takes the steam out of the AI boom, HSBC strategists said.