- Jeremy Grantham said US stocks are overvalued, a recession is coming, and AI is more important.
- If not for the AI frenzy, the stock would have fallen another 20% or 30% in 2023, the investor said.
- Grantham said he worries about foreign wars, especially when asset prices are at record highs.
Jeremy Grantham warns that stocks are ridiculously expensive and likely to struggle, artificial intelligence is a bubble destined to burst, and the economy will slip into a minor recession or worse.
The cofounder and long-term strategist of fund manager GMO recommended avoiding U.S. stocks in a recent interview with ThinkAdvisor. “They are priced almost ridiculously high compared to the rest of the world,” he said.
“The stock market will have a tough year,” he continued. He added that U.S. companies’ profit margins are at historic highs compared to foreign rivals, creating a “double jeopardy” situation for stocks where both earnings and multiples could fall.
Grantham, a market historian who sounded the alarm on a multi-asset “superbubble” beginning in 2022, said it burst that year when the S&P 500 fell 19% and the tech-heavy Nasdaq Composite plunged 33%.
The stock would have fallen another 20% or 30%, he said, but the selloff was “brutally stalled” by the AI frenzy in early 2023 that “changed the flight path of the entire stock market.”
The veteran investor said that “AI is not a hoax, as Bitcoin fundamentally is,” but he predicted that the “incredible euphoria” surrounding it would not last. Still, he suggested it could be as revolutionary as the Internet in the next few decades.
Despite solid GDP growth of 3.3% in the fourth quarter, unemployment in December and annual inflation below 4%, and the prospect of several interest rate cuts this year, Grantham also had a grim forecast for the US economy. Released. On the other hand, an inverted yield curve and a prolonged decline in key economic indicators point to trouble ahead.
He said that the economy will weaken. “We will have, at least, a mild recession.”
Grantham also flagged the danger posed by conflicts in Ukraine and the Middle East, warning that the wars could foster a geopolitical landscape that is “scary as hell and in which bad things can happen.” The backdrop is particularly troubling when assets are at record highs, he added.
“What I specialize in, other than bubbles, are long-term, low-grade negatives,” Grantham said. “And my God, there’s a whole bunch of negatives right now.”
Bubble Guru urged investors to be cautious, and recommended that they look for undervalued assets in emerging markets like Japan, depressed sectors like natural resources, and growth sectors like climate change solutions.
It is worth emphasizing that Grantham’s dire predictions have not been off the mark in recent years. For example, he suggested in April that a worst-case scenario could cut the S&P 500 in half by about 2,000 points, but the benchmark stock index has since hit an all-time high of 4,900 points. Is.