Need an excuse to sell stocks? Bill and Jeremy can help

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If the stock market is heading into a long-awaited ‘correction’ -- it’s broadly lower again today, on track for the sixth loss in seven sessions -- two of Wall Street’s elder statesmen will be happy to take some credit.

In separate written commentaries earlier this week, Bill Gross and Jeremy Grantham both came to the same conclusion: Stocks have rallied to levels that assume more than the economy can deliver.

Now, plenty of people have been parroting that line for months, but Gross and Grantham carry more weight than your average technical analyst.

Gross, the 65-year-old bond guru at Newport Beach-based Pimco, started his November commentary lamenting his own mortality, and from there launched into a fresh discussion of Pimco’s ‘new normal’ thesis about the economy, which holds that growth worldwide will be muted at best for the next three to five years.

In that context, he thinks investors have overdone it by pushing the Dow Jones industrials up more than 50% from the March market low.

‘The six-month rally in risk assets -- while still continuously supported by Fed and Treasury policymakers -- is likely at its pinnacle,’ Gross asserted.

Grantham, the 71-year-old chief investment officer at money manager Grantham Mayo Van Otterloo in Boston, began his latest market essay by railing against nearly everyone he could list (Ben Bernanke, ‘idiotic mortgage borrowers,’ ‘overbonused financial types,’ auto companies, and more), before segueing into the theme that financial markets are ‘being silly again’ after the recent run-up.

Grantham, who last spring predicted the stock market would see a big bounce, now says enough is enough. He thinks ‘fair value’ for the Standard & Poor’s 500 index is about 860, or 19% below Tuesday’s closing level of 1,063.

‘I would still guess . . . that before next year is out, the market will drop painfully from current levels,’ Grantham wrote. ‘ ‘Painfully’ is arbitrarily deemed by me to start at --15%,’ he wrote.

But Grantham said the market might not hit the wall until the first few months of next year, amid what he expects will be ‘disappointing economic and financial data that will begin to show the intractably long-term nature of some of our problems, particularly pressure on profit margins as the quick fix of short-term labor cuts fades away.’

Still, Grantham is not in the market-Armageddon camp. He still likes shares of ‘largely debt-free high-quality companies.’

-- Tom Petruno

Top photo: Bill Gross. Bottom photo: Jeremy Grantham.