Jeremy Grantham expects the S&P 500 to fall 26% to about 3,000 points over the next year.
He said the global economic backdrop looked more dire than the mid-2000s housing bubble.
The founder of GMO revealed that he is betting against the tech-heavy Nasdaq and junk bonds.
Jeremy Grantham has warned that the S&P 500 could fall another 26% next year, as financial markets face an unprecedented set of challenges. He also revealed that he is betting against the NASDAQ index and junk bonds.
Dark days ahead
“This is an even more perilous moment in the global economy than the 2007 housing bubble frenzy,” Grantham Tell Reuters Global Markets Forum on Wednesday.
The veteran investor and co-founder of GMO said the benchmark US stock index could fall from around 4,000 points today to 3,000 over the next 12 months, which is a 38% drop from its December peak. The S&P 500 is down about 15% this year.
“The deterioration in fundamentals globally looks very shocking,” he said, according to Reuters.
In the note, he emphasized the dangerous mix of significantly overvalued stocks, bonds and housing. high inflation and interest rate shocks; and sharp increases in commodity and energy prices. He also cited Russia’s invasion of Ukraine, ongoing COVID-19 lockdowns in China, and food and resource shortages as additional concerns.
A long-term investment analyst at GMO told the Reuters Forum to prepare for a crash in growth stocks, chaos in global housing markets and rising mortgage rates putting pressure on homeowners.
Grantham also forecast stubborn inflation and continued pressure on stocks. He noted that climate change is disrupting economies, shrinking national workforces due to falling birth rates, and depleting global supply of goods.
Moreover, he asserted that inflation has eroded real returns for investors over the past year, making a “marginal bear market a rather dangerous bear market.”
Take advantage of the collapse
Grantham seeks to capitalize on the massive repercussions he anticipates. Through his $1.5 billion charitable foundation, he has placed bets on the tech-heavy Nasdaq and high-yield bonds. Tell The Times in an interview published on Friday.
The Nasdaq is down 25% from its November peak. The index is generally viewed as more risky and volatile than the S&P 500, having a greater proportion of fast-growing, strong-value, unprofitable companies among its components.
High yield or junk bonds are rated lower than investment grade bonds by credit agencies. They offer greater returns to investors, but tend to be more volatile and carry a greater risk of default than higher-rated bonds.
Grantham’s bet indicates that he expects tech stocks to falter and corporate defaults to rise when the mega bubble bursts, sending tech stocks and junk bonds down.
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