Jeremy Grantham says the S&P 500 will fall at least 40% from its peak as the stock market bubble looks a lot like 2000 all over again

The stock market is in a bubble similar to 2000 that is deflating, according to a Wednesday interview with CNBC.

He thinks the S&P 500 will fall 40% from its peak in what will be a multi-year decline for stocks. It would send the S&P 500 to a level not seen since the March 2020 bear market. The S&P 500 is currently trading at the 3,905 level, down 18% year-to-date.

The current stock market looks similar to the 2000 dot-com bubble because of the damage done to US tech stocks.

This bubble appears to be focused on US tech, with the opening weakness in Nasdaq, which started to fall along with the Russell 2000 long before the S&P 500 did, making it look very much like 2000.

There are some differences between the stock market of today and the dot-com bubble of 2000.

There are a couple of differences with 2000 that are more serious. One of them is that 2000 was exclusively in US stocks, the bonds were great, the yields were terrific, housing was cheap, and commodities were well behaved.

The bond market was hurt by the fact that interest rates were raised from a floor of almost zero.

We are selling at a higher multiple of family income than we did at the top of the so-called housing bubble in 2006 because of the mess with housing. The bond market had the lowest lows in 6,000 years. In addition, energy prices have gone up, and metals and food prices are higher than they've ever been before.

This has turned out historically to be very dangerous because we are messing with all of the assets. Japanese stocks haven't regained the high seen in 1989.

While investors are eager to find opportunities in the stock market given that valuations have hit levels not seen in years, Grantham warns that the estimated profit margins at most companies will decline as an economic recession ensues.

The first thing that will happen in a recession is profit margins. We should be in a recession very soon.

Walmart and Target are forecasting an increase in input costs and lower profit margins because of it, and it is playing out in retail earnings this week.

The potential for the recession to turn into something like the 1970's, where economic growth slows and inflation persists is even more dire.

You have the same type offlation that we had in the 1970s.