Grantham: AI saved Big Tech but the bubble could burst soon. 2024 could be a problematic year
Jeremy Grantham, one of most important experts in the field of “financial bubbles”, co-founder and long-term investment strategist of the Grantham funds, Mayo, Van Otterloo & Co., from the height of its 85 years puts warning about US stocks that are “pulling more”.
In a recent interview on ThinkAdvisor, an industry website, explains how “the stock market will have a difficult year”. Company profit margins Americans are at all-time highs compared to their foreign rivals, creating a “double jeopardy” situation for stocks where not only profits could decline.
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Already at the beginning of 2022 Grantham had alarmed the markets by speaking of a “superbubble”, a financial superbubble, underway and due to the Big Tech sector. The market led by the magnificent 7, the giants that dominate the sector, namely Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, has however seen the downward trajectory they had undertaken suddenly changed. The credit goes to the frenzy for AI, which started at the beginning of 2023. But it is something that is not destined to last, explains the expert. Although AI will be a technology that will change the world in the next 20-30 years, as the Internet did, the reference stocks remain overvalued: the market is destined to fall quite suddenly. In essence we need to “avoid US stocks”. There will be a recession and it will be minor at best. But the sector could also collapse by 20-30%.
For Grantham we can instead look positively elsewhere, to Japan and the emerging markets. However, if you really need to know what to invest in the United States, he suggests looking at stocks that focus on quality. “It's the biggest inefficiency in the US market,” he says, and we're talking about stocks dealing with climate change, resources and ultra-cheap stocks. Not out of fashion but because for some time now many countries have been investing heavily in the sector. The demand for their services and products is expected to grow. Everything about these sectors and inflation protection strategies and diversification is therefore recommended. The green sector is booming from all points of view.
Therefore invest in high quality securities but also in ultra-cheap shares. The latter, in general, have undergone a phase of strong decline, therefore they have an important margin for recovery, if we look at the short term. When asked by the interviewer whether war influences market movements, Grantham replies that no, war is not a factor that has an impact in general. But the analyst appears concerned about how geopolitical structures could change the general picture. Grantham explains that China and Russia are moving, in his opinion, in a “somewhat dangerous” way. Their relations with the United States seem frayed and the prospect of Donald Trump taking a pro-Russian and lukewarm position within NATO could radically change the international structure, with effects that are not yet entirely clear. The market, as we know, hates uncertainties.
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