Jeremy Grantham, Jeffrey Gundlach, and other market veterans predict pain for stocks — and see a recession ahead

Several market experts predict stocks will falter and a recession will strike.David Karp/AP

  • The S&P 500 is trading near all-time highs as markets have shrugged off economic fears.

  • Some top investors and economists are still warning stocks will drop and a recession will strike.

  • Here’s what Jeremy Grantham, David Rosenberg, Jeffrey Gundlach, and Gary Shilling have said.

The S&P 500 burst past 5,000 points for the first time this week, as investors celebrated strong corporate earnings, slowing inflation, the growing prospect of interest-rate cuts, and the fading threat of a recession.

Yet several leading investors and economists remain convinced that stocks will tumble and a recession will strike the US. Here’s a roundup of their latest dire warnings:

“The stock market will have a tough year,” Jeremy Grantham told ThinkAdvisor recently, noting that US stocks are “almost ridiculously higher priced” than equities in other countries.

The market historian and cofounder of fund manager GMO sounded the alarm on a “superbubble” spanning stocks, housing, and other assets in early 2022.

He’s now warned that stocks could be hit not just by shrinking valuation multiples, but also declines in corporate profits as consumer spending and growth falter.

“The economy will get weaker,” he said. “We’ll have, at least, a mild recession.”

Grantham added that the conflicts raging in Ukraine and Palestine have created a geopolitical backdrop that’s “scary as hell” and could spell trouble when asset prices are at record highs: “There’s a rich collection of negatives right now.”

“The bull market in complacency will unravel as the recession few see, and few are positioned for, finally comes into view,” David Rosenberg predicted on LinkedIn last month.

The Rosenberg Research president and former chief North American economist at Merrill Lynch described the stock market’s 2022 plunge as an “appetizer” for what could happen once investors price a recession into markets.

The economy escaped a downturn last year because consumers burned through their savings and brandished their credit cards, employers refrained from laying off workers after suffering through the pandemic labor shortage, and the federal government poured money into the economy, Rosenberg said.

He pointed to retailers and homebuilders scrambling to drum up demand with promotions and discounts, and the government’s aggressive spending when economic growth and employment seem strong, as signs of trouble ahead.

Stocks and other assets are “on fire” and “rallying like crazy” at a time when more and more Americans are falling behind on their credit-card bills, and the embattled commercial real estate industry is looking worse and worse, Jeffrey Gundlach told Pensions & Investments in a recent X Spaces interview.

The billionaire CEO of DoubleLine Capital bemoaned a “lazy” and “complacent” market, comparing it to the dot-com and housing bubbles in terms of the hordes of undiscerning investors.

Gundlach said the S&P 500 is blatantly overvalued and likely to retreat at some point, but not necessarily in the near term.

He added that he wasn’t willing to ignore two big signs of a recession, namely the inverted yield curve and a protracted decline in leading economic indicators: “I think we’ll be in recession by the middle of this year.”

“Stocks are very expensive and very distorted,” Gary Shilling told Business Insider recently, adding that the S&P 500 could crash by 30% to below 3,500 points, its lowest level since late 2020.

Merrill Lynch’s first chief economist, who quit to run his own advisory-and-consultancy firm in 1978, is known for making several correct market calls over the past four decades.

Shilling predicted a recession this year based on “classic signs” such as the inverted yield curve, extended declines in leading economic indicators, and weakening small-business employment data.

He also noted that consumers have virtually exhausted their pandemic savings, the resumption of student-loan repayments has squeezed incomes further, and economic soft landings are extremely rare.

Moreover, a recession could be fueled by the Fed’s determination to not cut interest rates until inflation is firmly under control, as well as labor hoarding slowing layoffs and forestalling rate cuts, Shilling said.

Read the original article on Business Insider

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