Tags: Jeremy Grantham | stock market | bubbling | investing

Jeremy Grantham: Stock Market 'Not Bubbling Yet, But I Think It Will'

By    |   Tuesday, 05 May 2015 12:00 PM

The six-year bull market in stocks still has a little room to run, but not much, says star investor Jeremy Grantham of GMO.

The market is "still not bubbling yet, but I think it will," he writes in a quarterly commentary.

"The key point here is that in our strange, manipulated world, as long as the Fed is on the side of a strong market there is considerable hope for the bulls."

In light of the Federal Reserve's policy statement Wednesday, most economists don't expect it to raise interest rates until at least September.

"It seems logical to assume that absent a major international economic accident, the current Fed is bound and determined to continue stimulating asset prices until we once again have a fully-fledged bubble," Grantham says.

And what would constitute a bubble? "We at GMO still believe that bubble territory for the S&P 500 is about 2,250," he explains. That would represent a 7 percent increase from 2,105 Friday afternoon.

Meanwhile, superstar investor Mario Gabelli, CEO of Gamco Investors, sees a bright future for stocks, but risk abounds, he told CNBC.

"As we look into 2016 I'm looking at the economy in Europe picking up. The American companies will do a lot better because of earnings in Europe coming into the U.S.," Gabelli said. "The [U.S. stock] market is a function of earnings, and we're comfortable with that."

The eurozone economy grew only 0.9 percent last year, but is showing signs of life early this year, as the European Central Bank embarks on 60 billion euros of quantitative easing a month.

As for profits, analysts expect the S&P 500 to produce an earnings decline of 2.8 percent for the first quarter, according to FactSet.

When it comes to Gabelli's caution, "on balance there's no margin of safety," he said. If something goes wrong, you'll have the volatility that you had [Thursday]."

The CBOE Volatility Index, which measures the expected volatility of the S&P 500, jumped 9 percent Thursday.

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The six-year bull market in stocks still has a little room to run, but not much, says star investor Jeremy Grantham of GMO.
Jeremy Grantham, stock market, bubbling, investing
Tuesday, 05 May 2015 12:00 PM
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