One of the investing world’s most prominent bears says that the meme stonk crowd has it wrong: Not only are some stocks priced too high, nearly all companies are in fact overvalued.
By every measure, U.S. stocks are too expensive, says Boston-based asset management firm GMO, whose co-founder Jeremy Grantham warned that stocks were overvalued before crashes in 2000 and 2007. The firm said social-media criticism of its bearishness is misplaced.
“Many among the Twitter-sphere and other social media discussions have expressed frustration with GMO’s bearishness,” GMO said in a report. “Many have also wondered aloud whether GMO is not giving enough credit to some of these high-growth, new-business-model ‘disruptors.’”
Its seven-year expectations predict negative returns for 10 of the 11 asset classes it tracks, according to the company’s second-quarter forecast report.
U.S. stocks are near record highs, driven by gains in technology firms including Apple Inc., Microsoft Corp. and Amazon.com Inc. Higher earnings expectations have, for now, eased worries over the delta coronavirus variant and economic growth that had hammered markets earlier this week.
GMO conceded that some companies may deserve a high valuation. But “they’re also ALL being priced that way, and for us, that is a bridge too far,” the company said. “If one must own U.S. stocks, however, as many institutions and advisors do, we suggest leaning into value and cyclicals while maintaining a quality bias.”
Emerging-market value stocks are the lone asset class GMO expects to have a positive return over the next seven years, after taking inflation into account. Since GMO’s first-quarter forecast, its expectation for U.S. large-cap stocks slid from an annual inflation-adjusted seven-year return of -7.3% to -8%, while the projected return for American bonds fell from -2% to -3.1%.
Japan small value stocks are also attractive, GMO said. “Our forecasts are not all doom and gloom—in fact, they’re far from it,” the company said in the report.
This article was provided by Bloomberg News.