Global stock markets may crash by up to 50 percent

Asset manager Jeremy Grantham predicts a major economic recession

Ahmedabad: In the rapid recovery after the corona epidemic, the global economy and stock markets were growing at a superfast speed, but due to the Russia-Ukraine war and global inflation, this recovery has received a double blow. When the US Federal Reserve is obliged to raise interest rates up to five times in a single year to control inflation in the world's largest economy, the stock markets have been hit hard, but in the near future, there are fears that the dark clouds of the recession will become darker and more severe crashes are predicted. done

Jeremy Grantham, noted investor and co-founder of asset management firm GMO, predicted in a recent article that there is a bullish bubble in the stock market and house prices and it is about to burst, followed by a major recession. He warned that stock market participants had become overly optimistic, leading to a bubble in the stock market and real estate sector. Grantham cites indicators such as the 'Shiller Price-to-Angs Ratio' to prove his point. These signals are currently at their all-time highs and have even surpassed the levels seen during the dot-com bubble of 2000.

He also cited the median home price to income ratio, which is at an all-time high, indicating that homes are worth far more than people's incomes.

Grantham says the Federal Reserve has long pursued a low interest rate policy. This made borrowing much cheaper, which contributed to the creation of the bubble by driving up asset prices. They believe that this policy is not sustainable and will eventually lead to a major crash in the stock market and real estate sector.

Grantham predicted that the market could fall by up to 50% in the next year or two at worst, leading to a major recession. He also warned that this recession will be different than the previous ones because the last recession was caused by business cycles. While this time it will come from the bursting of the stock market and real estate bubbles.

He said that in the worst case scenario the S&P 500 index could fall to the 2000 level. On the other hand, if the US is lucky, it could end up around 3000, which represents about 24% downside from current levels.