Jeremy Grantham has warned the S&P 500 could plunge by more than 50% from current levels to 2,200 points.
But one of his colleagues, Ben Inker, says US stocks are much cheaper today than two years ago.
GMO's co-head of asset allocation says inflation and economic growth have made stocks more valuable.
Jeremy Grantham expects the S&P 500 to shed a third of its value, and plunge by over 50% from current levels if a few things go wrong. Ben Inker, the co-head of asset allocation at the elite investor's firm GMO, struck a much more positive tone during the latest episode of Morningstar's "The Long View" podcast.
Investors are facing a "wildly better" environment than two years ago, Inker said, because even if a recession lies ahead, they're getting "paid quite well for taking risk" in several parts of the world. Moreover, safe assets like Treasuries and cash are offering much larger yields than they have in years, providing more ways to earn a return, he noted.
"The exciting thing for investors is whether you're looking to buy an equity portfolio, a fixed-income portfolio, or a diversified portfolio across assets, the outlook looks pretty good," Inker said.
The strong rally in US stocks this year has erased the bulk of their losses in 2022, but they're still "substantially cheaper" now than a couple of years ago, Inker said.
He explained that inflation — which surged to a 40-year high of 9% last summer and has remained close to double the Federal Reserve's 2% target in recent months — has boosted the fair value of stocks because companies produce the goods and services that have climbed in price. America's economic growth over the last two years has increased the fair value of stocks too, as public companies generally grow alongside the wider economy.
The upshot is that US stocks are "substantially better than they were a couple of years ago," Inker said. He went as far as saying the cheapest 20% of stocks are "probably cheap in absolute terms" — a statement he and his colleagues haven't been able to make in a while, he noted.
Inker's comments are striking given that Grantham, GMO's cofounder and long-term investment strategist, has repeatedly sounded the alarm on a "superbubble" spanning multiple asset classes, and called for the S&P 500 to nosedive from about 4,600 points today to 3,200 points or even 2,200 points.
Grantham previously pegged the market bottom at 3,000 points, or 2,000 points if "a couple of wheels fall off." But he recently told Business Insider's William Edwards that inflation and economic growth had prompted him to raise those targets.
