The Blubber

Investor Jeremy Grantham has said the stock market could crash 50% this year as the bubble enters its 'final phase.'

In his bear-case scenario, he warned of a potential 50% decline in the stock market this year as he believes valuations are still too high even after last year's 20% decline. Grantham's base-case scenario calls for the S&P 500 to fall 20% to 3,200 by the end of this year.

"The biggest picture remains that long-run issues of declining population, raw materials shortages, and rising damage from climate change are beginning to bite hard into growth prospects... over the next few years, given the change in the interest rate environment, the possibility of a downturn in global property markets poses frightening risks to the economy."

"The bursting of the global housing bubble, which is only just beginning, is likely to have a more painful economic knock-on effect than the decline in equities is having... Housing busts seem to take two or three times longer than for equities – from 2006 for example it took 6 years in the U.S. to reach a low – and housing is more directly plugged into the economy than equities through construction starts and associated expenditures."

"Regrettably there are more downside potentials than upside. In the worst case, if something does break and the world falls into a severe recession, the market could fall a stomach-turning 50% from here... Even the direst case of a 50% decline from here would leave us at just under 2000 on the S&P, or about 37% cheap. 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%. So you shouldn't be tempted to think it absolutely cannot happen," Grantham said.