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- US stocks are priced for perfection in an “imperfect and dangerous” world, Jeremy Grantham said.
- Grantham’s worries include overseas wars and weakness, unaffordable housing, and climate damage.
- The top investor said AI could be bigger than the internet but the initial bubble would likely pop.
Stocks are dangerously overvalued and poised to disappoint, the AI bubble is bound to burst, and a recession appears likely, Jeremy Grantham has warned.
The bubble expert and long-term investment strategist at GMO issued the grim outlook in a Monday report titled “The Great Paradox of the US Market!”
Grantham noted the S&P 500’s Shiller P/E ratio — which divides the S&P 500’s price by its constituents’ average yearly earnings over the past 10 years to adjust for the business cycle — stood at 34 on March 1, a level in the top 1% of the metric’s historical range.
At the same time, corporate profits are also close to record highs. That “really is double counting and double jeopardy,” Grantham said, cautioning that stocks could see their earnings multiples contract and their margins shrink.
The paradox is why stock prices “reflect near perfection” in a “particularly imperfect and dangerous” world, he said. Grantham’s concerns included foreign conflicts, economic weakness in Europe and Asia, unaffordable housing, pressure on commercial real estate, climate damage, dwindling resources, and aging populations.