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hey investor friends I'm Michelle markian even though it's spring and birds are chirping I only just recently caught up on investor Jeremy grantham's latest GMO article that came out in late January 2023 and in that he said after a timeout back to the meat grinder as the title of the article and what I think he's suggesting here is that after we saw 2022 feature a 20 Market drop we're seeing a little bit of a bear Market rally but otherwise he believes that the market will continue trending downwards in 2023 and 2024 so much so that he believes that we haven't even had much of a recession yet and that also the stock market may not bottom until sometime in 2024 so I'll give you all the details about what I've read about in this article and if you enjoy learning about investing and stocks I hope you'll like And subscribe to my video and you do Channel because I'm trying to figure out the stock market just as much as you are and the more that we learn the better investors we hopefully will be so let's get into what Jeremy said Jeremy Grantham starts out his letter by talking about how the first and easiest leg of the stock market bubble bursting is over with as they had predicted about a year before so we largely saw some of this play out where a lot of the speculative fervor evaporated throughout 2022 and the S P 500 ended down about 20 percent down from its 4 800 all-time Peak at the end of 2021 down to about 38.40 on December 30th 2022 So based on that that's already a first big chunk of letting out steam out of the bubble but it sort of reminds me of one of those balloons that still surprisingly has a good amount of air even though it's been forever since the party ended and yet somehow the balloon remains afloat so in my opinion the balloon or bubble bursting is not yet over with and I think Jeremy seems to agree with that notion and also he thinks that we would see maybe the S P 500 go down to as low as 3200 by the end of 2023 which means that it would need to fall by another 16.7 percent or roughly 640 points from that 3840 so that seems a little bit of a tall order to me considering we're still at about 41.45 on the dam recording this April 20th where it would need to fall about 945 points or about 22.8 percent to reach down to that level so that seems to be kind of a lot but it's not impossible like as an example when we were first seeing some of the panic over the Silicon Valley Bank Run in March the market went down down on March 6 through March 13 about 4.75 percent so if it can go down about five percent in one week it could easily fall 20 in the span of a month if we truly had a lot of panic in the market so although it's very plausible that we could see upwards of 20 of a decline from April through the end of the year it still will require that something scares the market and what Jeremy is talking about in this letter he's talking about how the housing market has yet to substantially fall because it's nowhere near bursting and the labor market is also still pretty strong and also how much corporate fundamentals deteriorate will also significantly impact what happens in the market over the next 12 to 18 months so we'll just have to see exactly how things shake out but I'll give you even more details behind some of Jeremy's rationale and I just think that it still kind of feels like we're in the Twilight Zone so far like things have looked surprisingly Rosy and a lot of people are expecting the Federal Reserve to start cutting interest rates at some point this year because it's as if with Consumer Price Index or CPI inflation hitting around five percent in March 2023 that all of a sudden the FED has inflation under control but as we can see with the federal reserve's balance sheet going up a little bit because of some of the bank run we saw in March we don't think that inflation is over at all it still seems kind of far from reaching to two to three percent range that was its historical Norm over the last 15 to 20 years so based on that the inflation fight is far from over and that's why I think Jeremy is pointing out that there is way more downside to go but the first big error letting out of the bubble has come out so even though it's not as for sure that we'll see a market a downturn as it was a year ago it's still likely to come in the coming year or so and if Jeremy grantham's most dire prediction were to come true that means that the S P 500 could end up at just under 2 000 points and the stock market low may not be until we're well into the year 2024 which would mean from the peak of 4 800 at the end of 2021 sometime into 2024 could mean that it's more than two years before we see the final stock market bottom or a loss of 2 800 points or about 58.3 percent which is well within the realm of possibilities so that would be his most dire prediction if that were to come true and he said that oftentimes the stock market bottom looking at past bear markets May lag the start of a recession by an average of seven to eight months but that's just an average and it it's nothing compared to some of the super bubbles that we've been in before like in 2000 and in 1929 and also in the 70s so compared to those times we shouldn't look at just any normal bear Market but maybe we might expect something that could take longer like it did in some of those previous super bubbles where it took more than a year for the stock market to bottom and also usually the biggest stock market decline happens sometime after the First Federal Reserve rate cut so we can see in the previous super bubbles it was more than a year before the market bottomed in those occasions and also with the Federal Reserves current fed fund rate at the range of 4.75 to 5 percent it's predicted that it will only go up another 25 basis points to the range of 5 to 5.25 percent but then it will hold steady after May 2023 until perhaps September or November 2023 where it's predicted that maybe the FED will start cutting rates by another 25 basis points to end up at the current range of where we are now at 4.75 to 5 at the time I'm recording this in April 2023 So based on all that we still could wait for a while before the stock market starts it's really big Decline and so if a recession were to start as early as this July 2023 to up to a year from the time when Jeremy wrote the article so perhaps up until January 2024 where a recession could start So based on that if it's July this year then the market May bottom in February March next year or if it starts next January then the market would Bottom by August or September 2024 so we still have a ways to go if Jeremy's addictions at all were to come to fruition because he seems rather pessimistic and you won't hear many people on Wall Street be as pessimistic as Jeremy is so he could be totally wrong or totally right nobody quite knows what will happen in the future but I think it's definitely Food For Thought to try to heed some of his warnings so with that it kind of doesn't inspire me to invest that much in the market right now given that we could kind of get halved in the market from where we are now at the 4100 or so points so with that it could be pretty scary if the market drops by another 50 percent but definitely within the realm of possibility if you figure between now and a year and a half from now and finally I wanted to remark on Jeremy grantham's observation about what he calls the presidential cycle where there are a certain seven months that deliver the most return like six times is the amount of monthly returns compared to the other 41 months of the presidential cycle or four years in which there's a president and then leading up to an election about 12 to 18 months before this crucial six-month state of the labor market leading up to the election itself and say November of 2024 that's where it's crucial that the economy gets stimulated apparently because that could have outcomes on the economy and which perhaps presidential candidate might get some more favorable boost So based on that Jeremy is suggesting that starting around the fourth quarter of 2022 the economy gets a little bit extra stimulus so some of this seems to be playing out because the seventh month period happens from October 2022 and will have ended by April 30th 2023 So based on that we kind of actually did see some extra stimulus with the Fed adding some assets to its balance sheet and even though that seemed to be happening because of some of the bank run issues we were seeing in March it just so happens to be conveniently stimulating the economy all the same so I wouldn't be surprised if there for whatever reason seems to be some kind of connection here between the extra stimulus we saw because I'm sure whoever is running for president wants to make some comment about the state of the labor market and for the incumbent they want to be like look the economy is doing great people have jobs and the unemployment rate is low so I'm sure that will be a Hot Topic in the six months leading up to the election and I'm sure the opponent will jump on the opportunity if the employment rate is not looking so hot in the six months leading up to the election So based on that it's interesting how basically now in Spring 2023 the market got a boost from the stimulus but might kind of fizzle out from here so I wouldn't be surprised if this summer things were to get a lot less optimistic in the stock market especially if we have yet to see the labor market kind of crumble and also he talked about how people's savings from the pandemic stimulus are starting to run out so we're at somewhat less than half of the two to three trillion dollars that were saved up of extra stimulus and if we're at less than half of that currently saved up that may run out perhaps sometime this year we'll just have to see maybe what the state of people's savings look like but I know that more people are living paycheck to paycheck so without that extra boost and without some of that extra excitement that individual investors had that as institutional investors left the markets in 2022 individual investors like you and and I were still holding strong or holding throughout 2022 but the more that people need their savings they might cash out of some of their Investments this year and maybe you may need to pay for some of the extra debt they accumulated or their mortgage payments may need to require some attention so maybe some people will need to cash out of some of their investments in 2023 and 2024 as some of their credit card and other debt come home to roost and require some cash infusion So based on some of that I think for now it's a great time to continue learning to invest and bite our time to not necessarily be too excited as the market May temporarily be rallying throughout 2023 but maybe before long there will be Panic setting in yet again and so I would wait until the market devalues even more and see if Jeremy ends up being right because even though the market has has come down somewhat it's still historically overvalued and we can see this reinforced by the current Schiller PE as well as the Buffett indicators showing that the market is still way above its historical trend line so based on that it's no wonder that gmo's seven-year predicted returns for U.S stocks is if we're lucky barely negative but if we're unluckier then it might be even more negative than what it currently may seem and we haven't even factored in the effect of inflation which will add even more negative return to already current negative returns predicted over the next seven years at least for U.S stocks if you were to buy today and then also if you were interested in perhaps getting a positive return Jeremy's suggesting that you might want to look at emerging markets and also Emerging Markets value so depending on what you may find there that might be a better bet for returns but that would be an area that you'd have to get familiar with and emerging markets and international stocks may not be everyone's cup of tea so definitely be careful if you're waiting into international waters and so with that if you enjoyed this video or learned something please like And subscribe and let me know in the comments what you think about all of this do you think we're gonna have a recession in 2023 or 2024 and more importantly when do you think the stock market May bottom because that might be the perfect time to buy stocks if you could predict it but since none of us can we'll just have to see what happens so have a good day and talk to you next time
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