Matthew Lloyd/Getty Images for ReSource 2012
- The stock bubble is still in the process of deflating and the market won't bottom until 2024, Jeremy Grantham said.
- The legendary investor blasted the Fed's monetary policy as a 36-year-long "horror show."
- He foresaw mild pain in the year ahead for investors, warning of a falloff in equities around April.
The stock market bubble is still in the process of deflating, and equities will finally bottom out amid the Federal Reserve's "horror show" monetary policy in late 2024, according to legendary investor Jeremy Grantham.
In a recent interview on Bloomberg's What Goes Up podcast, the GMO co-founder reiterated his view that stocks were in a speculative bubble and about to pop, thanks to the end of ultra-low interest rates and ample liquidity in the market that brought stocks to dizzying highs during the pandemic.
Grantham also blasted the Fed's monetary policy in the years since former Alan Greenspan took over as chairman of the central bank in 1987, calling its influence over the US economy a 36-year-long "horror show" that helped create overpriced assets in recent years.
"They've engaged in policies that drive up the prices of assets, other things being even, and create spectacular overpriced bubbles. They then break because that's what bubbles have to do. They simply break off their extreme overpricing, and we pay a very tough price," Grantham said.
Though Grantham previously predicted stocks would fall 20% this year, he noted that bubbles could take several years to fully pop, and predicted the market to bottom out late next year. In the worst-case scenario, that could mean the S&P 500 plunging 50%, he previously said – and that means investors shouldn't be fooled by any intermittent rallies in the market.
"My guess was this was going to be a long one," Grantham said. "That's what happens in the great bubbles. They have wonderful rallies. They can have spectacular January rallies," he added, referring to the strong gains stocks posted in 2023. That's similar to the rallies seen prior to the burst of the dot-com bubble, when the Nasdaq Composite plunged 40% in 2001. "And this has been following the lead of 2000 perfectly," he warned.
In the meantime, Grantham saw mild pain in the year ahead for investors. Stocks should be back in the "meat grinder" phase of the market, he said, due to typical patterns seen in an election year and presidential cycles. But the losses won't be devastating in comparison to where the market where eventually bottom.
"I do think there is a biting chance that this year will not be down that much," Grantham said. "My guess through April it will stay up. I know that unexpected bears, that Morgan Stanley and so on are talking about a fairly immediate decline, and that may occur, but my guess is it's hard to get this market really down until we get rid of April."
Other market commentators have warned the crash will indeed arrive this year. "Dr. Doom" economist Nouriel Roubini thinks that stocks could plummet 30% as the US tips into recession, and markets guru Larry McDonald, said stocks could plunge up to 30% over the next 60 days as soaring interest rates will continue to hammer the market.