Grantham warns against selling only halfway

  • Shares slid into a bear market on Friday, dropping 20% ​​from recent highs during the session.
  • According to Jeremy Grantham, the market has further downside.
  • He said that the stocks in the “real McCoy” bubble.

On January 20, investment legend Jeremy Grantham published an article titled “Let the Wild Rambus Begin”.

He warned that the bullish frenzy is about to turn into a bearish one.

At the time, the S&P 500 had fallen only about 6% from its recent highs – after a surplus of 100% in the index in less than two years – and the market was still used to the idea that tighter monetary policy was ahead.

For example, around the same time, Savita Subramanian, head of equities and quantitative strategy at Bank of America, made what was considered at the time a rather shocking prediction that the Fed would conduct about seven 25 basis point rate increases. This opinion is now a consensus.

Since January 20, the S&P 500 is down another 14%, officially down


alcohol market

area, 20% below its highs, on Friday.

Grantham, founder of asset management firm GMO, has said in recent days that the sell-off is far from over.

In an interview with Ray Dalio, founder of Bridgewater Associates, recorded May 9 and published May 19, Grantham compared the current environment to past bubbles, and warned of similar repercussions.

“This is the real McCoy,” said Grantham, who described the crash of the Internet and the crash of 2008. “It looks like he’s playing close to 2000.”

Grantham listed the adjectives he uses to define bubbles: “a quasi-hysterical behaviour, very peculiar over-optimism”; Rapid price appreciation and big cap stocks rise while “risk” stocks fall. This was evident, he said, in the S&P 500 index rising 25% more than the Russell 2000 index, an indicator of small capital. He also noted the over-optimism that was evident in the movement of meme stocks, bitcoin and speculative funds like Cathie Woods’ ARKK, all of which have suffered significant losses since their peak.

Now, it’s the S&P 500’s turn.

“I think the declines are going to be very significant,” he said.

On CNBC Thursday, Grantham got more specific and said the sale ended only halfway, meaning he thinks there’s a 40% drop in stock for the index before it’s all said and done. If this scenario materializes, the S&P 500 will drop to 2875. It closed near 3869 on Friday.

He also said that a stagflation environment similar to the 1970s is a possibility, and that the United States will soon be in a recession.

Grantham’s views in context

Grantham’s views of the coming months are among the most bearish on Wall Street.

Most Bearish Strategist in


big banks

Mike Wilson of Morgan Stanley has an S&P 500 target of 3900 for the next 12 months.

But in the near term, Wilson sees more pain to come. “This bear market rally is not yet complete,” he said in a note early in May, and that the index could drop to 3,460.

In a May 10 note, Wilson said, “3900 indicates that we expect to exceed our near-term downtrend target before returning towards 3900 next spring.”

This week, Scott Minerd, global head of information for Guggenheim Partners, told MarketWatch that the S&P 500 could fall 45% from its January highs.

Others have become increasingly bearish in recent months as tight monetary policy is expected to negatively impact economic growth and corporate earnings.

David Kostin, chief US equity strategist at Goldman Sachs, cut its target for the S&P 500 index three times this year, from 4,900 to 4,700 to 4,300 as of this week. if it was


Recession

Will it materialize next year — which Goldman Sachs says there is a 35% chance — Costin said the index will drop to 3,600.

Some are more bearish in the longer term, including Deutsche Bank, which said in April it expected a recession by the end of 2023 with a 20% drop in the S&P 500 before it. Meanwhile, Jonathan Golub, head of the stock exchange at Credit Suisse, said he expects a recession in early 2024.

But overall, a recession is not the base case for most Wall Street, and a handful of strategists still have bullish price targets for 2022. Some of the most bullish include Oppenheimer John Stoltzfuss with a price target of 5,330 and Deutsche Pinky Chadda of the bank (at Although calling for a recession in 2023) with a target price of 5250.

The median on Wall Street is 4800, which indicates a 24% rise from current levels.

The market situation is developing rapidly, which makes it difficult to determine the future of stocks. In the past four months alone, the macroeconomic outlook has changed dramatically.

Inflation has begun to moderate, falling from 8.5% to 8.3% in April. However, it is still well above the Fed’s long-term target of 2%.

If the central bank continues its tightening spree, Grantham may be right, and more pain may come.

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