Jeremy Grantham Warns U.S. Stocks Could Plunge 70% in Most Expensive Market in History

💡 Jeremy Grantham predicts a 70% collapse in U.S. stocks, citing the most expensive market in history.

The Federal Reserve delivered a hawkish surprise on Wednesday, signaling that interest rate cuts remain further away than markets had hoped. Fed Chair Jerome Powell told reporters that the central bank needs "greater confidence" that inflation is sustainably declining before it will consider easing policy.

The 10-year Treasury yield surged to 4.8% in the aftermath, its highest level since October 2023. $TLT fell sharply as bond traders repriced the timing of the first cut from March to June.

Market Valuations

Grantham's warning echoes concerns over the market's high valuations, which have been rising steadily since the global financial crisis. With the S&P 500 trading at over 25 times earnings, Grantham argues that investors are taking on excessive risk. The value investor has been sounding the alarm on market valuations for years, and his prediction of a 70% collapse in U.S. stocks is not without precedent. In 2000, the tech-heavy Nasdaq index plunged 78% from its peak, wiping out trillions of dollars in wealth.

Historical Precedents

Grantham points to historical precedents, such as the Dow Jones Industrial Average's 82% decline in the early 1970s, as evidence that a 70% collapse is not impossible. He also notes that the market's current valuations are more extreme than even those seen during the dot-com bubble. With the Federal Reserve having kept interest rates low for an extended period, Grantham argues that investors are not adequately pricing in the risks associated with a potential economic downturn.

What's Next for Investors