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Billionaire Jeremy Grantham predicts more pain in the stock markets. When will it happen?

Do Kwik
17. 4. 2023
4 min read

Many investors are eagerly awaiting the next bull market. But Jeremy Grantham argues that we are now about halfway through the stock market slump. When will the second half of the falls happen, why does he think so?

Jeremy Grantham, well-known investor and co-founder of GMO, is once again predicting a potential bursting of the stock bubble. Grantham has become famous for predicting market declines over several decades and now believes stocks are in the "last phase" before the crash. In this article, we look at the reasons for his view, his history of successful predictions, and the implications for investors and the economy.

Who is Jeremy Grantham?

Jeremy Grantham is a British investor, co-founder of GMO, and known for his predictions of market falls. His experience and ability to predict market crashes has earned him respect in the world of finance. Born in 1938 in the UK, he holds a degree in economics from the London School of Economics. He later earned a master's degree from Harvard Business School and co-founded GMO in 1977.

Grantham is known for his long-term investment strategies and deep understanding of economics and financial markets. His ability to anticipate market downturns and warn of overvalued assets makes him a respected financial expert. His current forecast predicts a continued decline in the stock market to be caused by a reduction in interest rates.

What lies ahead?

According to Grantham, the bursting of the stock bubble will only be halfway through when the Fed starts cutting interest rates.

Most of the decline in these great bear markets occurs after the first interest rate cut. So tell me when the first interest rate cut occurs and I'll tell you when the second half of the pain begins.

He expects that to happen in late 2024. Grantham says that great stock market bubbles are different from typical bull and bear markets, suggesting that another round of pain is likely. He says most of the decline in bear markets occurs after the first interest rate cut.

Rising inflation and higher interest rates have caused significant losses for investors over the past year. Central bankers have raised interest rates by 475 basis points, causing the S&P 500 index to fall 20% in 2022. Fed chief Jerome Powell has said rates will remain elevated for the rest of this year. Markets are pricing in a 33% chance of a 25 basis point rate cut as early as July, according to the CME FedWatch tool.

https://www.youtube.com/watch?v=upNtvxjltNg

Grantham had previously predicted that stocks could fall as much as 50% if the economy entered a severe recession. His view echoes that of other Wall Street strategists who say a recession and stock market decline are extremely likely in 2023.

Given the uncertainty about the future of the stock market, it is important for investors to carefully consider their investment strategies. Portfolio diversification, i.e. spreading investments across different assets, can help reduce the risk of losing value in the event of a market downturn. Investors should also monitor interest rate developments and economic indicators that may affect the stock market.

Grantham has a history of successfully predicting market downturns. In 2000, he correctly predicted the bursting of the tech bubble that led to the NASDAQ market crash. Grantham also warned of the overvaluation of the U.S. housing market and its subsequent collapse in 2008, which resulted in the financial crisis. His ability to foresee these events has drawn the attention of the investment community to his current forecasts.

Grantham points out that the stock market can be affected not only by economic factors but also by geopolitical events. For example, trade wars, political tensions or uncertainty about global growth can have a negative impact on markets. Investors should take these aspects into account when planning their investment strategies.

Conclusion

Jeremy Grantham, well-known investor and co-founder of GMO, warns of a continued stock market decline and predicts another bursting of the market bubble. His views echo the concerns of other Wall Street strategists who believe that a recession and stock market decline are extremely likely in 2023. In these uncertain times, it is important for investors to carefully consider their investment strategies and monitor market developments. Portfolio diversification and awareness of economic indicators can help investors better prepare for potential market turbulence. At the same time, they should take geopolitical events into account and look for alternative investment opportunities, such as ESG investments, which can offer protection from market fluctuations.

WARNING: I am not a financial advisor, and this material does not serve as a financial or investment recommendation. The content of this material is purely informational.


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