Jeremy Grantham's Bubble Call: Early Again or Finally Right?

Jeremy Grantham posted a new video making his familiar case: US stocks are in a bubble, the AI rally is a mania, and the unwind will be violent. The GMO co-founder has been saying this for years. He was early on the 2000 dot-com crash and the 2008 housing bust. He was also early on a crash call in 2021 that never came. The S&P 500 kept climbing.

Grantham often cites the Rudiger Dornbusch quote: "In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could." That captures the frustration of being early. It also captures the conviction that eventually, the math catches up.

The setup today looks different from 2021. The Magnificent Seven stocks have driven most of the index's gains. Concentration is at levels not seen since the 1970s. Grantham argues that narrow leadership is a hallmark of late-cycle bubbles. He points to the 1972 Nifty Fifty and the 2000 tech bubble as parallels. In both cases, the leaders collapsed when the narrative broke.

What is different this time is the macro backdrop. Interest rates are higher. The Fed is not cutting aggressively. Inflation is sticky. Grantham sees a recipe for a valuation reset that could take the S&P 500 down 40% or more from its peak. He has said that before, and it did not happen. The longer rates stay elevated, the harder it is for high-multiple stocks to justify their prices.