‘Stomach-turning’: US shares could plunge 50 per cent, investor says

A leading investor is predicting major pain on Wall St in 2023, predicting the S&P 500 to fall by as much as 50 per cent this year.

Jeremy Grantham says the S&P 500 is poised to plunge up to 25 per cent in 2023. (Photo by Daniel Reinhardt/picture alliance via Getty Images)

Longtime investor Jeremy Grantham has delivered a frightening forecast for US shares in 2023, predicting the S&P 500 could plunge by as much as 50 per cent.

The legendary co-founder of investment firm GMO delivered a paper on Tuesday titled “After a Timeout, Back to the Meat Grinder” that spelled doom for investors.

Grantham, long known as one of Wall Street’s most prominent bears, says the bursting of the bubble of US stocks is far from finished.

“The range of problems is greater than it usually is — maybe as great as I’ve ever seen,” he told Bloomberg in an interview from Boston.

“There are more things that can go wrong than there are that can go right,” he added. “There’s a definite chance that things could go wrong and that we could have basically the system start to go completely wrong on a global basis.”

The S&P 500 is currently sitting just about 4000. Grantham predicts it should be about 3200 by the end of the year but that it is likely to spend time below that level — including around 3000 — during 2023.

Grantham also wouldn’t discount the index plummeting all the way to 2000, which he said would be “brutal”..

“Regrettably there are more downside potentials than upside,” Grantham wrote. “In the worst case, if something does break and the world falls into a severe recession, the market could fall a stomach-turning 50 per cent from here. At best there is likely to be at least a further modest decline, which by no means balances the risks.”

Jeremy Grantham, co-founder and chief investment strategist at GMO. Picture: James Croucher

“To put this in perspective, it would still be a far smaller percent deviation from trendline value than the overpricing we had at the end of 2021 of over 70 per cent,” Grantham said. “So you shouldn’t be tempted to think it absolutely cannot happen.”

Grantham cited a major correction in the US housing market and the continued uncertainty surrounding the Russia-Ukraine war as factors that could lead to more pain.

US stocks seesawed on Tuesday as investors weighed the chances of a global recession this year and more companies report earnings.

After plunging 19 per cent in 2022, the S&P 500 has rallied about five per cent this year as China’s economy reopens from strict lockdowns, energy prices ease, and hopes rise that a severe downturn can be averted even if inflation remains high and interest rates keep rising, albeit at a slower pace.

“There is a twinge of nervousness setting in that the stock market has gotten ahead of itself and is due for a pullback,” said market analyst Patrick O’Hare at Briefing.com.

Wall Street’s three main indices all opened 0.5 per cent lower but recovered their losses in late morning trading after a closely watched survey showed improvement in the US private sector.

The S&P Global Flash US Composite PMI rose from 45.0 points last month to 46.6 in January. A figure below 50 indicates contraction.

— with AFP