Jeremy Grantham is a famed investor and historian of stock markets.
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- Jeremy Grantham has said the current sell-off in stocks is “eerily” similar to those in 1929 and 2000.
- The GMO founder said a sharp fall in “flaky” stocks is a sign that big names could be about to plunge.
- “The S&P 500 has kept strong right up to the last second,” he told Bloomberg TV.
Legendary investor Jeremy Grantham has said the current sell-off in stocks is “eerily” similar to the Wall Street crash of 1929 and the dotcom bubble of 2000, when markets plunged and didn’t recover for years.
The dramatic fall in some of the “flaky” parts of the stock market so far this year has followed the paths of previous implosions, the founder of investment firm GMO told Bloomberg TV.
He said blue chip stocks are likely to soon start falling dramatically.
“This has been exactly how the great bubbles have broken,” Grantham said in a Wednesday “Front Row” interview with Bloomberg’s Erik Schatzker.
“The S&P 500 has kept strong right up to the last second, and wave after wave of the stocks that had made the real running peel off and drop.”
Grantham has been ramping up his warnings that a US “superbubble” is about to implode. The GMO founder is a veteran investor and market historian who’s widely credited with having called the 2000 and 2008 crashes.
So far this year, the tech-heavy Nasdaq 100 stock index has tumbled more than 13%. Investors are reassessing which companies can perform well as the Federal Reserve prepares to hike interest rates, inflation stays hot, and economic growth continues at a solid pace.
Stocks in many early-stage companies have collapsed by 50% or more since around February last year, when concerns about Fed policy first started eating away at valuations. Ark Invest’s Innovation ETF, which bets on fast-growing tech companies and soared in 2020, has fallen 55% from a high in February.
Grantham said the performance of the Russell 2000 index of smaller companies, which has fallen over the last year, is a sign that things are not well in the US stock market.
“This is a huge divergence of a kind that has never happened other than the super bubbles of 1929 and 2000,” he said. “It’s almost eerily classic. It’s a pattern.”
Read more: Goldman Sachs says buy these 24 stocks with solid balance sheets, healthy margins, and reasonable valuations as the market selloff intensifies
Grantham said he is “just about nearly certain” that a major crash is coming for the entire US stock market. He said the S&P 500 is likely to drop almost 50%, wiping out tens of trillions of dollars of wealth.
He said the Fed is now less able to step in to support stock markets, as it notably had done during Alan Greenspan’s tenure from 1987 to 2006.
Hot inflation is tying the central bank’s hands, he said, as is the fact that interest rates are already very low and the balance sheet is large due to huge amounts of bond purchases.
In the interview, Grantham also suggested that the era of cheap oil and cheap copper is coming to an end, contributing to inflationary pressures.
However, many strategists on Wall Street are brushing off Grantham’s concerns. They argue that while unprofitable tech companies may have further to fall, other parts of the market will stay strong and cause the S&P 500 to rise in 2022.
“We do believe earnings might help some of the stocks that are quite big in terms of the market to find a floor, and to provide a bit more stability to the index,” Emmanuel Cau, head of European equity strategy at Barclays, told Insider this week.