Jeremy Grantham says this is the most expensive market in ‘American history’
Veteran investor Jeremy Grantham thinks the AI boom is pushing the US stock market to its most expensive level ever and could eventually lead to a historic crash.
“Based on the value of the stock market relative to GDP, this is the most expensive market in American history,” Grantham told CNBC’s “Squawk Box.”
The tech bubble of 2000 is the closest analogy, although GMO’s co-founder said he wasn’t sure if there was a similar period. He also noted the so-called Buffet indicator, which compares the total value of the US stock market valuation to the size of the economy in terms of GDP.
The market capitalization to GDP ratio that Grantham references is estimated to be 235%. longtermtrends.com. This means that the total stock market value is more than twice the size of the US economy.
Legendary investor Warren Buffett used this indicator years ago and said, “When it gets close to 200%, as it did in 1999 and part of 2000, you’re playing with fire.”
Graham said markets could potentially peak, although the timing is highly uncertain.
Grantham is a famous investor known for his history of calling bear markets and has issued similar dire warnings in the past, including in March 2024.
At the time, he predicted that the long-term outlook for U.S. stocks was weaker than at almost any point in history, but stocks continued to rise after that warning.
“The long-term outlook for the U.S. stock market looks as weak as any other time in history,” Grantham said. a blog post It was launched by Boston-based GMO at the time.
Grantham at SpaceX
Grantham also weighed in on the aftermath of SpaceX’s blockbuster IPO. The stock rose in the first few days of trading but lost steam. The investor said AI is where investors want to put all their money, but it also creates conditions for overinvestment.
He noted that Amazon shares fell 92% in the wake of the dot-com bubble before the company eventually “took over the world.”
SPCX 5-day chart
“It’s complicated in the long run, I don’t know, but will there be a collapse like Amazon? Yes, it’s very likely. And then what happens may actually be debris blowing away on the waves of time, or it will take over most of the market, like Amazon did,” he said.
He believes SpaceX and its roughly $2 trillion valuation are another sign of extreme market exuberance.
Historians may eventually look back on the company’s public launch as “one of the defining highs of all time,” he said.
“This is what you see at the top,” Grantham said.
