Viewpoints | June 29, 2017

I Do Indeed Believe the U.S. Market Will Revert Toward Its Old Means – Just Very Slowly

Executive Summary

After a few misquotes and misunderstandings by journalists on his pieces “Not With a Bang But a Whimper,” Jeremy has provided a response:

“They have said, or implied, that I believe high prices are here permanently and that I also believe regression to the mean has ended. This is, of course, inaccurate, as readers of my quarterly letters know. I have suggested that although mean reversion in margins and price earnings ratios is still probable, the speed of regression has slowed way down and become sticky. Because of this stickiness, I have suggested that regression of P/Es and profit share will take 20 years as opposed to the 7 years (the basis of GMO’s official 7-year forecast) that is more typical of the period 1900-1997 and that even then those measures will have only regressed back two-thirds of the way to the old normals.”

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Disclaimer: Forecasts are forward‐looking statements based upon the reasonable beliefs of GMO and are not a guarantee of future performance. Forward‐looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forward‐looking statements. Forward‐looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results may differ materially from those anticipated.
The views expressed are the views of Jeremy Grantham through the period ending June 29, 2017, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
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