Jeremy Grantham, the co-founder and long-term investment strategist at GMO Asset Management, returned to CNBC Squawk Box with one of the bleakest market calls of his career. Grantham, who says GMO manages roughly $85 billion, called this “the most expensive market in American history” and warned that a reversion to trend would be closer to a wipeout than a routine correction.
Grantham says the eventual peak-to-trough decline is “closer to a 70% decline” than a 50% drop. He stresses that the timing of such a move is inherently uncertain, placing the window anywhere from roughly 2 weeks to 2 years. It might be smart for investors to read his warning as a thesis from a prominent bubble-caller, not necessarily a guarantee that the market will decline anytime soon.
Why Grantham Thinks Valuations Are Historically Stretched
Grantham’s valuation claim leans on a long historical baseline. He says the market’s price-to-earnings ratio has averaged more than 60% higher from 2010 to today than during the prior 100 years, a persistent premium he attributes in part to a long stretch of unusually cheap money.
However, the 10-year Treasury yield sits at 4.41% as of June 24, 2026, in the 81.5th percentile of its trailing 12-month range. The federal funds rate target upper bound is 3.75%, where it has been held steady since December 11, 2025. Inflation, meanwhile, has continued to grind higher, with CPI reaching 333.979 in May 2026, the high of the trailing year.
The Two-Sigma Bubble Framework
Grantham anchors his bear case in a statistical framework he calls a “two sigma” threshold. He says that all 26 previous market bubbles that reached this threshold eventually fell back toward their historical trend, making today’s valuations especially concerning in his view.
He draws his closest comparison to the dot-com peak. Grantham says today’s setup most resembles the 2000 tech bubble, but argues the numbers look worse now. On his track record from that era, Grantham notes he called a 70-75% NASDAQ decline in 2000, and the index ultimately fell 82%.
Parallels Between AI, the Internet, and Railroads
Grantham is careful to separate today’s AI technology from his opinion on the market’s valuation. He acknowledges AI is genuinely transformative, but argues universal recognition of that fact has produced dangerous overinvestment. His historical parallels are railroads and the internet, which were both world-changing innovations that nonetheless produced bubbles and temporary collapses that, in his words, destroyed early investors first.
The Nasdaq-100 index is up around 16.62% year-to-date through June 25, 2026, and 32.38% over the past year. The S&P 500 tracker has returned 20.95% over the trailing year, with a 547.93% gain from January 4, 2010 through June 25, 2026, the era Grantham flags as anomalously expensive.
Key Takeaways
Whether Grantham is ultimately right remains an open question. His warning rests on the premise that markets have repeatedly returned to long-term valuation trends after periods of extreme optimism, even when the underlying technology proved revolutionary.
At the same time, markets can remain expensive for years before sentiment changes. Grantham himself has acknowledged that timing is the hardest part of any bubble call. For readers who want primary sources, GMO publishes Grantham’s quarterly letters and bubble research at the firm’s research library.
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