Jeremy Grantham has a new and provocative argument for why the U.S. stock market will produce mediocre returns this year.<\/p>\n
Grantham is the co-founder of GMO, the Boston-based investment firm. He has been bearish on the U.S. stock market SPX for more than a decade and, so far at least, he\u2019s been wrong.<\/p>\n
Yet Grantham commands a wide following on Wall Street. Though early in forecasting both the bursting of the internet bubble and the bear market during the global financial crisis, Grantham had the last laugh. Most stock-market analysts would disagree with Grantham\u2019s current bearishness, but worry that they dismiss his arguments at their peril.<\/p>\n
Grantham\u2019s latest bearish case is that U.S. stocks could be sabotaged this year by an overheated IPO market. In a recent 2026 outlook event at GMO, Grantham said:<\/p>\n
\u201cMy prediction is that 2026 is going to see a level of IPO excitement that we haven\u2019t seen in a while. My guess is that at least two of the private giants (OpenAI, Anthropic, SpaceX) will go public, and this is likely to put pressure on the U.S. market later in the year. \u2026 Post-IPOs, initially, maybe the market rises, but longer term, as more stockholders are able to monetize, that will create a challenge for the U.S. market.\u201d<\/p>\n
How much of a challenge for the stock market would such IPO \u201cexcitement\u201d cause? GMO calculates that, historically, a 1% increase in the stock market\u2019s total market capitalization because of IPOs corresponds to a 7.5% decrease in the market\u2019s subsequent 12-month return.<\/p>\n
Since the U.S. stock market\u2019s total market cap is currently around $50 trillion, a 1% increase would require an IPO from a company with a value of at least $500 billion. The AI companies Grantham mentions would come close to that threshold or exceed it, given their recent valuations in the private market.<\/p>\n
Yet there\u2019s no guarantee that any of these IPOs will happen this year. With tech falling out of favor in recent weeks, AI companies have come under renewed scrutiny and there\u2019s now a less favorable environment in which to go public. Scott Galloway, clinical professor of marketing at New York University\u2019s Stern School of Business, recently said in a podcast entitled \u201cBig Tech\u2019s AI Vibe Shift\u201d that \u201cOpenAI could get pulled\u201d \u2014 meaning an IPO wouldn\u2019t happen.<\/p>\n<\/p><\/div>\n