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GMO’s Grantham: S&P 500 Could Drop Another 25% in the Next Year

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What You Need to Know

  • Fair value for the S&P 500 could be about 3,000 a year from now, and there's nothing stopping it from slipping below that, he tells the AP.
  • The bursting of the "superbubble" is hardest for mid-career people, Grantham said.
  • Young investors with long time horizons should benefit from stock pullbacks, he notes.

Despite this year’s major stock market slide, investor Jeremy Grantham sees room for further pullback.

Grantham, co-founder and chief investment strategist of Grantham, Mayo, van Otterloo & Co., told The Associated Press recently that fair value for the S&P 500 a year from now would be “pretty close to 3,000” — a roughly 24% decline from its value in Friday afternoon trading.

And there’s nothing to stop the market from slipping below fair value, he said in the interview published Monday. The S&P 500 is “certainly entitled to spend several months below 3,000,” Grantham told the AP.

The S&P 500 is down nearly 17% year to date, recently reaching 3,959. In mid-June it hit a 52-week low of 3,636.87.

Grantham expects “considerably more pain before this is finished,” and thinks it could happen in as little as six months or as long as three years, according to the AP story.

Grantham early this year warned that the stock market was experiencing a “superbubble,” the AP noted. Investors getting into “extravagantly overpriced markets” often have to wait a decade to make money, he told the wire service, adding that a number of factors will determine whether that will be the case this time.

Those sustaining the most damage from the popped bubble are 45-year-olds, Grantham told the AP, noting that retirees are benefiting from Social Security. Mid-career people have a harder time, while investors with another 30 years in their careers should welcome the lower stock prices because their portfolios will benefit from compounding.


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