A prominent investor says US share markets, along with most other assets, are in a “super bubble” that in the process of bursting into a crash.
It has been a rocky start to the year for the US share market, and Jeremy Grantham said the collapse in stocks he predicted a year ago is underway and major US indexes could fall by half.
The British born co-founder of Boston-based investment firm GMO said US stocks are in a “super bubble”, the fourth of the past century.
“This checklist for a super bubble running through its phases is now complete and the wild rumpus can begin at anytime,” Mr Grantham wrote in a note to investors.
“When pessimism returns to markets, we face the largest potential markdown of perceived wealth in US history.”
He said the US was seeing simultaneous bubbles for the first time across all major asset classes of real estate, stocks, commodities and bond markets.
“We have the most exuberant, ecstatic, even crazy investor behaviour in the history of the US stock market.”
Mr Grantham sees the S&P 500 index dropping by half, to a level of around 2,500, and warned there could a even bigger fall on the Nasdaq.
The Nasdaq has already entered correction territory, and is now down 12 per cent from its November record high.
He noted that many people would not want to hear his “old fogey” advice, just as he ignored bubble warnings from more experienced investors early in his career.
“I doubt speculators in the current bubble will listen to me now, but giving this advice is my job and possibly the right thing to do,” he said.
“So once more unto the breach, dear friends.”
Mr Grantham said many speculative stocks started falling nearly a year ago, including the Ark Innovation exchange traded fund in the US, which has already lost 52 per cent of its value.
ASX takes a hit
The Australian share market slumped after another fall on Wall Street as investors worry about pending rises in interest rates by the US central bank.
In the last hour of trade, the market fell nearly 3 per cent.
By the close, the All Ordinaries index lost 2.3 per cent to 7,490, while the ASX 200 index also fell 2.3 per cent to 7,176.
All sectors were sold off with miners and energy stocks leading the declines.
It is the second biggest percentage fall this year.
The index fell 2.7 per cent on January 6th after the US central bank indicated it may raise official rates sooner than expected.
Leading the losses on the ASX 200 index were uranium miner Paladin Energy (-11pc), buy now, pay later firm Zip (-7.8pc) and rare earths miner Lynas (-7.5pc).
Whitehaven Coal (-6.1pc) took a hit after it cut its coal production forecast after operations were affected by COVID-19.
The top performers on the ASX 200 index were gold miners Regis Resources (+6.1pc) and Ramelius Resources (+2.9pc), and building materials maker Boral (+2.1pc).
Software firm Nuix slumped by nearly 23 per cent as it said it expected earnings to fall and legal costs to rise.
The company is being investigated by regulators.
ANZ (-1.6pc) did the worst of the big four banks.
Qantas said it would cut flights to Western Australia because of the WA Government’s plans to delay the reopening of its border.
It will run up to 15 flights a week from Sydney, Melbourne, Adelaide, Darwin, and Brisbane to Perth.
And Fortescue Metals said it was concerned that the lack of clarity on the reopening of WA’s borders could worsen labour shortages.
The Australian dollar dropped 0.5 per cent to 71.88 US cents at 4:30pm AEDT.
Oil prices fell from a seven year high after a surprise gain US crude stockpiles and a rise in petrol supplies.
Brent crude fell nearly 2 per cent to $US86.72 a barrel.
Spot gold was up 0.1 per cent to $U1841.16 an ounce.
Asian markets were also sold off.
BHP investors back single listing
Big miner BHP got support from shareholders to unify its corporate structure to make Australia its global headquarters and primary share market listing.
More than 97 per cent of investors voted in favour of the plan at a virtual meeting in London, after more than 96 per cent of Australian shareholders supported the proposal.
The move means that BHP will delist from the London Stock Exchange, where is is one of the biggest companies on the FTSE 100 index.
BHP’s dual listing dates back to its merger with South Africa’s Billiton in 2001.
Some Australian investors have criticised the move.
BHP shares lost 4.8 per cent, to $45.70.
Rival Rio Tinto lost 4.1 per cent as Serbia revoked its lithium exploration licences after pressure from protesters who oppose the development of the Jadar lithium project.
Steaming service Netflix disappointed investors after forecasting weak first quarter subscriber growth.
The world’s largest streaming service forecast it would add 2.5 million customers from January to March, less than half the number forecast by analysts.
Netflix said the late arrival of popular content, including period drama Bridgerton and Ryan Reynolds time travel movie The Adam Project, would likely weigh on subscriptions.
It added 8.3 million customers from October to December, when it released new programming including movies Red Notice and Don’t Look Up.
Netflix shares fell nearly one fifth in after-hours trade.
US stocks end lower
Wall Street ended lower as a rally faded in late trade, a day after the Nasdaq fell into correction territory.
In futures trade, the ASX SPI 200 index fell 0.7 per cent to 7,194.
The Australian dollar rose 0.2 per cent to 72.24 US cents at 7:40am AEDT.
The Nasdaq turned negative in the final hour of trade after rising as much as 2 per cent.
Most sectors on the S&P 500 index ended lower.
The Dow Jones index fell 0.9 per cent to 34,715, the S&P 500 lost 1.1 per cent to 4,483, and the Nasdaq Composite lost 1.3 per cent to 14,154.
Exercise bike maker Peloton Interactive fell 24 per cent after CNBC reported that it was pausing production of its fitness products because of waning demand.
Concerns the US Federal Reserve would be more aggressive in raising interest rates this year than the market has priced in continue to weigh on confidence as investors look to the US central bank’s policy meeting next week for fresh guidance.
Travel stocks helped boost European markets.
In London, the FTSE 100 index fell 0.06 per cent to 7,585, the DAX in Germany rose 0.7 per cent to 15,912 and the CAC 40 in Paris rose 0.3 per cent to 7,194.