Jeremy Grantham Warns 'Super Bubble' in Stocks Has Yet to Burst

Famed investor Jeremy Grantham said the “super bubble” he previously warned about has yet to pop, even after this year’s turbulence in the US stock market.

The co-founder of Boston asset manager GMO, known for calling market bubbles, said in a note Wednesday that the surge in US equities from mid-June to mid-August fits the pattern of bear market rallies common after an initial sharp decline — and before the economy truly begins to deteriorate. Grantham, 83, sees more trouble ahead because of a “dangerous mix” of overvalued stocks, bonds and housing, combined with a commodity shock and hawkishness from the Federal Reserve.

Grantham predicted around the start of the year that benchmark stocks would plunge almost 50% in a historic collapse. The S&P 500 at one point in June dropped almost 25% from its January peak, before roaring back in the following two months. Yet US equities are tumbling yet again, falling on Wednesday for the fourth straight session, with prominent strategists like Morgan Stanley’s Mike Wilson among those cautioning investors that the market hasn’t hit bottom.

"You had a typical bear market rally the other day and people were saying, ‘Oh, it’s a new bull market,” Grantham said in an interview. “That is nonsense.”