According renowned investor, Jeremy Grantham, who perfectly called the 2000 dot-com bust and the 2008 Great Recession stated, “when the Fed begins lowering interest rates, the stock market bubble crash will only be partially over – “You tell me when the first rate cut is, and I’ll tell you when the second half of the suffering starts.”
Grantham, who has established his name by correctly predicting market disasters over many decades, believes there will be even more doom in the near future. Before to the latest asset price boom, the legendary investor, claimed that equities were in the “final phase” before collapsing and that the economy was at risk of a severe recession.
To combat inflation, central bankers have increased interest rates by 475 basis points, but according to Grantham, this could cause the US to enter a potentially severe recession.
Investors and retirees may ask themselves, if the fallout and wreckage in 2008 was caused by a 5% recession to our country’s financial output for the year, GDP, then what should be expected when the U.S. suffered a 33% blow to the nations finances in 2020? In your mind can the Fed print a recovery?
If this inflation is due to the massive barely calculable tens and tens of trillions on dollars printed in response to covid, eliminating that inflation should mean removing the funds so badly required to stave of utter insolvency, then isn’t the issue of insolvency to return? Or, is it actually possible to have something for nothing? An incredibly strong economy – from the printing press?
According to GMO co-founder Jeremy Grantham, the stock market bubble implosion won’t be fully finished until the Federal Reserve starts lowering interest rates. Late in 2024, he anticipates that to take place.
Although some investors are searching for indicators of the upcoming bull market, the Boston-based investment strategist said that is the wrong way to view stocks at the moment. There may yet be more suffering since “Big Bubbles” in the stock market are distinct from regular bull and downturn markets.
“In these large bear markets, the majority of the slide only occurs after the initial interest rate reduction. You give me the date of the first interest rate reduction, and I will let you know when the second phase of the suffering will begin.”
Rates will remain high for the remainder of this year, according to Fed Chief Jerome Powell, which is anticipated to hurt stock performance. But according to the CME FedWatch tool, markets are pricing in a 33% chance of a 25 basis-point rate cut as early as July, in part because interest rates at these levels could easily drive the economy into recession.
Due to rising interest rates and inflation, which have reduced the liquidity that once drove up asset prices, investors have already suffered significant losses over the past year. The S&P 500 fell 20% in 2022 as a result of central bankers raising interest rates by 475 basis points to control inflation; currently, the index is down 14% from its all-time high set in 2021.
The strategist had previously warned that if the economy experiences a severe recession, stocks might drop by as much as 50%. A recession and stock market decline are very likely in 2023, according to several Wall Street experts, despite the fact that his predictions are on the more pessimistic end of the range.