The markets are in a bubble, GMO fund manager Jeremy Grantham claimed in an article “Let the Wild Rumpus Begin” published a few weeks ago. The article received considerable media coverage because it was published at a time when the stock market - and especially the shares of technology companies – were in a downward correction. In an uncertain situation, Grantham’s view was of interest because the market had been rising for years, and the bubble argument was thus intuitively plausible.

According to Grantham, stocks, real estate, and commodities are all badly overvalued. Grantham compares the current situation in the U.S. stock market to 1929 and 2000. These were famous bubble years which were followed by a crash. In the housing market, Grantham equates the current situation with 1989 in Japan and 2006 in the United States. Both housing bubbles ended badly for investors.

“For those investors who want to pursue higher returns than what the U.S. CAPE seems to offer, there are areas in the stock market whose valuations have not risen in the same way as in the U.S. Value stocks have done badly for a long time, so their valuation levels relative to growth stocks have become exceptionally attractive in recent years. The gap between growth and value stock valuations is currently the largest ever, even larger than at the peak of the technology bubble in early 2000, asset manager AQR claimed in December 2021. This is interesting because, after the bursting of the 2000 bubble, value stocks beat growth stocks every year until 2007,” Pietari Laurila is a full-time eToro investor, said.

In his opinion, there may be now the best opportunity in two decades to invest in value stocks.

“The stock market is generally expensive, but this does not mean that equity investing should be stopped. The market is not in the bubble described by Grantham, and value stocks are still reasonably priced,” Laurila argued.

(WBJ)