The US stock market could be facing a major crash in the near future, according to legendary investor Jeremy Grantham’s 2023 outlook letter. His calculations of the S&P 500’s trendline value, adjusted for growth and inflation, is about 3200 by the end of 2023, which could mark a 20% decline for the year and 40% from the market’s last peak in January of 2022.[0] He estimated the odds of the market reaching these levels to be 3 to 1.[1] In the worst-case scenario, the market could overcorrect more than expected and stocks could sink by up to 50% from their previous peak.[1]
Adding to this, a Finnish economist from the University of Vaasa is warning of an “armageddon” financial crisis in the next few decades that could bring on an epic stock market collapse.[2] This could be even more severe than Grantham’s prediction and could potentially lead to a full-on crash by 2050.
Investors should be aware of the potential for a significant decline in the near future and should time their investments accordingly. However, if the market does decline, it will still be a far smaller percent deviation from trendline value than the overpricing we had at the end of 2021 of over 70%.[0] Therefore, it may not be wise to think that a 50% decline is absolutely impossible.
0. “Jeremy Grantham warns of a massive stock market crash in 2023 outlook” Markets Insider, 29 Jan. 2023, https://markets.businessinsider.com/news/stocks/jeremy-grantham-stock-market-crash-warning-2023-bubble-outlook-2023-1
1. “Legendary investor Jeremy Grantham warns stocks could drop another 50% this year—but he doesn’t say to stay away from markets entirely” Yahoo! Voices, 30 Jan. 2023, https://www.yahoo.com/now/legendary-investor-jeremy-grantham-warns-173553990.html
2. “An economics researcher is warning that the next few decades could bring a massive stock market collapse” msnNOW, 4 Feb. 2023, https://www.msn.com/en-us/money/savingandinvesting/an-economics-researcher-is-warning-that-the-next-few-decades-could-bring-a-massive-stock-market-collapse/ar-AA176z05?li=BBnb7Kz