Ben Inker, head of global asset allocation at Grantham Mayo Van Otterloo & Co., said the Standard & Poor’s 500 Index will have negative returns, adjusted for inflation, over the next seven years because U.S. stocks are so overvalued.

“The U.S. stock market is trading at levels that do not seem capable of supporting the type of returns that investors have gotten used to receiving from equities,” Inker wrote in quarterly letter released Monday. U.S. stock values “will be resolved either through a relatively quick bear market or a longer period of more of less flat returns.”

In the same letter, Jeremy Grantham, chief investment strategist for the Boston-based firm, wrote that prudent investors should already be reducing their equity bets and their risk level in general.

Stocks have been pushed to record highs in three rounds of assets purchase by the Federal Reserve, which have forced investors into risk assets such as equities. The Dow Jones Industrial Average exceeded 16,000 for the first time today and has gained 22 percent this year, and the S&P 500 Index climbed 26 percent.

BlackRock Inc. Chief Executive Officer Laurence D. Fink said this month that stocks may decline as much as 15 percent because of political risks in China, Japan, France and the U.S. New York-based BlackRock is the world’s largest money manager, with $4.1 trillion in assets.

Grantham’s Prediction

Grantham, 75, is best known for his prediction in 2000 that stocks would lose ground over the next decade. The benchmark index lost 1 percent a year in the 10 years ended Dec. 31, 2009, according to data compiled by Bloomberg.

Inker said the fair value of the S&P 500 Index is 1100. The index closed today at 1791.53. He said the expected return on the index over the next seven years was a loss of 1.3 percent annually after adjusting for inflation.

GMO managed $112 billion as of Sept. 30, according to its website.