The US stock market and economy are on shaky ground, warns investment strategist Jeremy Grantham. Despite the hype surrounding AI and its influence on stocks, Grantham has forecasted a slump and sees a 70% chance of a recession by early 2025. In a recent investor event in Sydney, the GMO co-founder further touched on various topics including meme stocks, banking risks, real estate, commodities, and Tesla, among others.
Grantham, renowned for his long-term investment strategies, also shared his concerns about potential problems brewing within the financial system. He advised against buying real estate or commodities, given their current inflated prices. However, he expressed optimism about companies combating climate change, including Elon Musk’s Tesla, attributing them with the potential to drive more growth than any other sector in the economy.
Jeremy Grantham’s Grim Projection for the US Stock Market and Economy
Jeremy Grantham, GMO’s co-founder and long-term investment strategist, has issued a stark warning about the future of the US stock market and economy. Speaking at a Livewire Markets event in Sydney this week, he predicted a 70% chance of recession by early 2025 and cautioned against potential brewing issues in the financial system.
A Bear Market Ahead
Grantham does not believe we’re in the midst of a new bull market. His reasoning is based on the historical basis of bull markets, which he says have never begun from such high prices. "There’s never been a bull market in history that started from such high prices — and by a lot, this is not even close," Grantham stated. However, he did express uncertainty around the timing and severity of the potential market downturn.
Market Frenzy and Meme Stocks
Grantham also reflected on the recent frenzy of the US equity market, driven by meme stocks and growth stocks. He mentioned his accidental investment in QuantumScape, a startup that saw a massive valuation even before it had a product, let alone profits or sales. He described it as "one of the great speculative events of all time."
Real Estate and Commodities Warning
Grantham advised caution when it comes to real estate and commodities. He described real estate prices as at "crushing high multiples of family income," making it difficult for young people to afford a house. Regarding commodities, he warned of their unpredictable nature, stating that they often experience "shocking drops."
Climate Change Stocks: A Bright Spot
Despite his overall pessimistic outlook, Grantham expressed enthusiasm for climate-change stocks, citing their potential for "incredible top-line revenue growth." He praised companies like Tesla, which are fighting against climate change, stating that "it will be the sector of the economy that drives more growth than anything else."
Grantham’s warnings serve as a reminder of the unpredictable nature of financial markets and the economy. While his prediction of a recession is concerning, his endorsement of climate-change stocks offers a glimmer of hope. Investors would do well to keep an eye on these sectors as they navigate the uncertain economic landscape.