Jeremy Grantham has been forecasting a rise in the Standard & Poor’s 500-stock index to 1,400 or more, but his heart hasn’t been in it. Grantham, chief investment strategist of the fund manager GMO, sees the stock market as being in a bubble fueled by Federal Reserve-sponsored easy money. He has been calling in his quarterly letters to investors for stocks to peak in October, but in his latest missive he advises waiting no longer to bail out.
“Lighten up on risk-taking now and don’t wait for October 1 as previously recommended,” he urges.
Grantham notes that the third year in the presidential election cycle is a special time for stocks, producing gains during the first seven months, on average, of about 20 percent above the rate of inflation. That also happens to be nearly all of the average return for stocks across any four-year span, meaning that the remaining 41 months, a period that’s about to begin, shows virtually no net increase at all.
The calendar isn’t the only thing working against the market. Grantham calculates fair value for the S&P 500 at 920, which would make it nearly 50 percent overvalued, and his letter highlights several other factors that could put the market on borrowed time.
Keep reading here: Grantham: Sell in May and Don’t Come Back – CBS MoneyWatch.com.
