Caveat Emptor

In the world of stock market prognostications, few strategists are as good as Jeremy Grantham. 

As a public service, I bring you his outlook for the markets. To say that it is cautionary would be an exaggeration. Thus, from the New York Post:

The stock market is set to go “back to the meat grinder” this year despite a recent minor rally, with the broad-based S&P 500 potentially plummeting by 50% in a worst-case scenario, famed investor Jeremy Grantham warned Tuesday.

Grantham, the 84-year-old co-founder of Boston-based asset management firm GMO, told clients in a letter that the “first and easiest leg of the bursting of the bubble” in US stocks is now “complete,” with “the most extreme froth” wiped out during last year’s selloff.

Under his projections, the S&P 500 would plunge by about 17% to approximately 3,200 for the full year of 2023, or about 20% after early gains in the market so far this year. But the outcome could be far worse if the global economy topples into a significant recession, according to Grantham.

“Regrettably there are more downside potentials than upside,” Grantham wrote. “In the worst case, if something does break and the world falls into a severe recession, the market could fall a stomach-turning 50% from here. At best there is likely to be at least a further modest decline, which by no means balances the risks.”

In brief, caveat emptor.

Of course, you might believe that real estate is a better investment. To which Goldman Sachs suggests that the hottest real estate markets-- San Jose, Phoenix, Austin and San Diego-- are about to collapse.

The Daily Mail has the story:

House prices will plummet this year with San Jose, Austin, Phoenix, and San Diego staring down the barrel of 25% boom-to-bust declines, according to Goldman Sachs.

The Fed's ongoing inflation battle, which sent mortgage rates soaring from 3% to 7% in 2022, has throttled the housing market and sparked the biggest price correction since the 2008 crash.

Goldman warned investors in a research paper earlier this month titled, 'Getting worse before getting better', that housing markets were particularly overheated in the Southwest and Pacific Coast.

While Goldman's outlook for the national housing market is less dire, with prices seen dropping 6% this year before rising next year, certain cities could see sharp declines in home valuations. 

San Jose, Austin, Phoenix, and San Diego are projected to be stung with peak-to-trough declines of 25% that would rival the 2007-08 Global Financial Crisis which saw house prices plunge 27% nationwide.