- Legendary investor Jeremy Grantham said that US stock markets are in a bubble. As a result, he expects that the markets to crash. He said that the current euphoria is the fourth real bubble of his investing career.
- Grantham correctly predicted the 2008 housing market crash and the dot-com bubble. Incidentally, the percentage of fund managers who see equity markets as overvalued is the highest since 1998.
US stock markets in a bubble
Several leading asset managers have expressed their views on a bubble in US stock markets. Famed investors like Paul Tudor Jones, David Tepper, Jeffrey Gundlach, Stanley Druckenmiller, Mark Cuban, and Jim Rogers predicted a US stock market crash. However, equity markets continued to rise. While the Nasdaq 100 (NASDAQ:QQQ) hit a new all-time high, the S&P 500 (NYSEARCA:SPY) turned positive for the year at one point. Paul Tudor Jones and Stanley Druckenmiller accepted that the price action humbled them.
Now, Jeremy Grantham said that US stock markets are in a bubble. In fact, he said that the current scenario is the fourth bubble of his investing career. Speaking with CNBC, he said, “The great bubbles can go on a long time and inflict a lot of pain but at least I think we know now that we’re in one.”
Will the US stock markets crash?
Grantham correctly predicted Japan’s asset price bubble, the 2008 housing market crash, and the dot-com bubble. Notably, the June Bank of America fund manager survey showed that 78% of fund managers think that stock markets are overvalued. That’s the highest percentage of fund managers calling markets overvalued since 1998. Back then, stock prices were elevated due to the dot-com boom. As I noted in a previous article, investors’ frenzy towards electric vehicles has some resemblance to the dot-com boom.
The Fed and stimulus
US stock markets have outperformed global markets this year, which might sound perplexing. The country has been impacted the most by the pandemic. Meanwhile, unprecedented easing by the Fed and trillions of dollars of stimulus from the federal government charged up the bulls. While there’s little denying that this is possibly the biggest disconnect between financial markets and the real economy, market crash proponents had little success. Read US Stock Markets: What Are Bears Up Against? to learn more.