Major Stock Market Crash Looming: What Investors Should Know
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. He estimated the odds of the market reaching these levels to be 3 to 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.
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. 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%. 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