The key US stock indices continue to recover speedily. However, this fact does not indicate that the correction has been completed and now a new stage of growth is about to begin. The reasons why the US stock market will most likely correct in 2022 have been discussed in the previous article. Currently, it is a widespread belief. Moreover, a Fed rate hike is not extremely troublesome for the market. In that case, capital will start flowing from risky markets and instruments to risk free ones. In case the Fed starts unloading its balance sheet with accumulation of securities to the amount of $9 trillion, it will mean withdrawal of excessive money supply from the US economy. Therefore, the demand for any assets will be reduced. It is the opposite process to the one observed a year and a half or two years ago. However, there are also experts who believe that a correction will not be sufficient for this situation.
Renowned investor Jeremy Grantham, who has previously predicted market bubbles and their collapses, said that the US stock market crash had already begun. He believes that many stocks and stock indices will lose at least 50% of their maximum value. Grantham called the US stock market a "super bubble". He thinks it is bound to burst as it was in 2000 or 2008. As evidence, Grantham produced several arguments. First, he focused on the Cathie Wood Ark Invest fund, specializing in high-tech stocks. The fund's stock has sunk 52% over the past year. Second, Grantham pointed to the Russell 2000 Index, which contains stocks of mid-cap companies. This index usually outperforms the S&P 500 according to the uptrend. However, the situation was the opposite last year. This fact suggests that an imbalance has developed in the US stock market. Stock indices were growing at the expense of the most speculative stocks and the largest companies, while medium-sized companies did not show adequate growth. Overall, Grantham noted that the situation should resume its normal course. Large companies should return to pre-pandemic capitalization levels. Overvalued and speculative stocks need to regain their real value. Third, Grantham focused on completely irrational investors' moves. They had been buying up meme stocks, spending billions of dollars on NFT, and investing in cryptocurrencies like Dogecoin over the past year. All these facts evidenced the last stage before the collapse. Besides, Grantham added that "bubbles" are currently being inflated in the real estate market, the bond market and even the commodities market...