Legendary Wall Street investor Jeremy Grantham recently warned investors of a potential stock market crash in his 2023 outlook letter. He said that while the market has cooled off from its peak earlier this year, it is still far from its long-term averages. He predicts that the S&P 500 could fall by 20% by the end of 2023, and 40% from its peak in January of 2022. In a worst-case scenario, Grantham estimates the market could fall by a stomach-turning 50%.
But Grantham’s predictions may be too conservative. A Finnish researcher recently published a paper warning of an “armageddon” financial crisis in the next few decades. Klaus Grosby used a model to analyze the S&P 500 over the past twenty years and concluded that the coming crash could be more severe than 1987 and 1929. He believes that the “extreme monetary policies” of the central bank could accelerate the onset of a financial crisis.
Timing the potential stock market decline is tricky, but investors should keep an eye on long-term trends and be prepared for a decline. Even if the market falls by 50%, it would still be a far smaller percent deviation from trendline value than the overpricing seen at the end of 2021. By preparing for the worst-case scenario, investors can protect their portfolios and be prepared for whatever the market throws their way.
0. “Wall Street prophet Jeremy Grantham predicts another stock market crash” The Times, 30 Jan. 2023, https://www.thetimes.co.uk/article/wall-street-prophet-jeremy-grantham-predicts-another-stock-market-crash-fk0v00j7g
1. “Musk, Burry, Grantham Warn of Pain for Stock Market, US Economy” Markets Insider, 4 Feb. 2023, https://markets.businessinsider.com/news/stocks/musk-burry-grantham-taleb-spitznagel-stock-market-outlook-economy-recession-2023-2
2. “An economics researcher is warning that the next few decades could bring a massive stock market collapse” msnNOW, 4 Feb. 2023, https://www.msn.com/en-us/money/savingandinvesting/an-economics-researcher-is-warning-that-the-next-few-decades-could-bring-a-massive-stock-market-collapse/ar-AA176z05?li=BBnb7Kz
3. “An economics researcher is warning that the next few decades could bring a massive stock market collapse” Yahoo! Voices, 4 Feb. 2023, https://www.yahoo.com/finance/news/economics-researcher-warning-next-few-133000909.html
4. “Jeremy Grantham warns of a massive stock market crash in 2023 outlook” Markets Insider, 29 Jan. 2023, https://markets.businessinsider.com/news/stocks/jeremy-grantham-stock-market-crash-warning-2023-bubble-outlook-2023-1