CMO head Jeremy Grantham believes investors are, in fact, for a big equity rally courtesy of huge government stimulus.
But Grantham says a large rally now is far more likely to prove a last hurrah that will set us up for a long, drawn-out disappointment, not only in the economy but also in the stock markets of the developed world.
“If the stock market is many times more sensitive to financial stimulus in the short term than the economy is, then we could easily get a prodigious response to the greatest monetary and fiscal stimulus by far in U.S. history,” Grantham writes in his most recent letter to investors.
Unfortunately, Grantham says this rally will end swiftly.
"To be honest, I believe that most of you readers are likely to be grandparents before you see a new inflation-adjusted high on the S&P," he notes.
The biggest earnings-season rally since 2002 has pushed 34 percent of the companies in the Standard & Poor’s 500 Index above analysts’ price targets for the next year, raising concerns about the pace of the recovery.
“To expect this to continue to move onward and upward from here would be unrealistic,” Bank of New York Mellon Wealth Management chief investment officer Leo Grohowski told Bloomberg.
“It would be healthy for the market to take a breather and allow some of the fundamentals to catch up.”
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