Jeremy Grantham thinks that if a few things go wrong, the S&P 500 will lose a third of its value or more than 50% of its present value. The latest episode of Morningstar’s “The Long View” podcast had a much more positive tone from Ben Inker, who is co-head of asset allocation at the high-net-worth company GMO.
According to Inker, things are “wildly better” for investors now than they were two years ago. This is because, even though a slowdown is coming, they’re getting “paid quite well for taking risk” in many places around the world. He also said that safe investments like Treasuries and cash are now yielding much more than they have in years, giving people more ways to make money.
“The exciting thing for investors is whether you’re looking to buy an equity portfolio, a fixed-income portfolio, or a diversified portfolio across assets, the outlook looks pretty good,” said Inker.
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The big rise in US stocks this year has wiped most of their losses from 2022, but Inker said they’re still “substantially cheaper” now than they were a few years ago.
He said that rising prices for goods and services, which caused inflation to reach a 40-year high of 9% last summer and stay close to double the Federal Reserve’s goal of 2% in recent months, have made stocks more valuable because they make the goods and services that have gone up in price. The fair value of stocks has gone up along with the growth of the American economy over the last two years. This is because public companies tend to grow at the same rate as the economy.
It all added up to US stocks being “substantially better than they were a couple of years ago,” Asker said. Going so far as to say that the 20% of stocks that are the cheapest are “probably cheap in absolute terms” was something he and his coworkers hadn’t been able to say in a while, he said.
Grantham, GMO’s cofounder and long-term investment strategist, has frequently warned of a “superbubble” affecting many asset classes and said the S&P 500 should drop from about 4,600 points today to 3,200 points or even 2,200 points. Inker’s comments are shocking in light of this.
Grantham thought the market would hit bottom at 3,000 points, or 2,000 points if “a couple of wheels fall off.” But he recently told William Edwards of Business Insider that inflation and economic growth made him raise those goals.