The surge in US equities from mid-June to mid-August fits the pattern of a bear market rally, according to the co-founder of Boston asset manager GMO.
Famed investor Jeremy Grantham said the “super bubble” he previously warned about has yet to pop, even after this year’s turbulence in the US stock market.
Grantham, 83, sees more trouble ahead because of a “dangerous mix” of overvalued stocks, bonds and housing, combined with a commodity shock and hawkishness from the Federal Reserve.Grantham predicted around the start of the year that benchmark stocks would plunge almost 50 per cent in a historic collapse. The SP 500 at one point in June dropped almost 25 per cent from its January peak, before roaring back in the following two months.
To Grantham, the collapse of a super bubble comes in several stages. First, there’s a setback like the one in the first half of the year, then a slight rally follows. Finally, fundamentals break down, and the market reaches its low point. This time around, he pointed to near-term problems such as the impact of Russia’s invasion of Ukraine on Europe, which is grappling with food and energy crises, along with fiscal tightening and China’s persistent COVID issues.
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