Jeremy Grantham.Boston Globe/Getty ImagesAccording to Jeremy Grantham, US stocks are severely overvalued, and a recession is on the horizon, while he also warns that the AI craze is overblown. Grantham believes that if it weren’t for the AI trend, stocks would have seen a significant decline of 20% to 30% in 2023.He raised concerns about the possibility of foreign conflicts, especially at a time when asset prices are at historic highs. Grantham emphasized that stocks are extremely overpriced and are likely to face challenges, and cautioned that artificial intelligence is a bubble waiting to burst, which will have negative implications on the economy.The co-founder and long-term strategist of fund manager GMO advised to steer clear of US stocks in a recent ThinkAdvisor interview. He expressed his belief that US stocks are priced significantly higher compared to the rest of the world, and warned that the market is in for a tough year ahead. Grantham pointed out that American companies have historically high profit margins in comparison to their foreign counterparts, creating a situation where both earnings and multiples could decrease significantly.Grantham, a market historian who sounded the alarm on a multi-asset “superbubble” at the beginning of 2022, mentioned that it burst that year with the S&P 500 falling by 19% and the tech-heavy Nasdaq Composite plunging by 33%. He stated that stocks would have experienced a further 20% to 30% decline, but the AI frenzy in early 2023 abruptly altered the trajectory of the entire stock market.The veteran investor acknowledged that AI is not a hoax like bitcoin, but cautioned that the overwhelming excitement surrounding it is not sustainable. Nonetheless, he suggested that it could potentially be as groundbreaking as the internet over the next few decades.Grantham also painted a bleak picture for the US economy, despite the solid GDP growth of 3.3% in the fourth quarter, unemployment and annualized inflation being below 4% in December, and the possibility of several interest rate cuts this year. However, he highlighted the concerns surrounding the inverted yield curve and prolonged declines in leading economic indicators, indicating troubling times ahead.Story continuesHe forecasted that the economy will weaken, and predicted at least a mild recession. Grantham also drew attention to the potential threat posed by conflicts in Ukraine and the Middle East, stating that wars can create a geopolitical environment that is concerning, particularly when asset prices are at record highs.”In addition to identifying bubbles, what I specialize in are long-term, undervalued negatives,” Grantham stated. He expressed his worry about the current abundance of negative factors.The bubble expert advised investors to tread carefully, and recommended seeking undervalued assets in emerging markets such as Japan, depressed sectors like natural resources, and growth areas such as climate-change solutions.It’s important to note that Grantham’s pessimistic forecasts have not been accurate in recent years. For instance, in April, he suggested that the S&P 500 could drop by half to around 2,000 points in a worst-case scenario. However, since then, the benchmark stock index has soared to an all-time high of over 4,900 points.Read the original article on Business Insider
