"OpenAI, SpaceX and other IPOs could break the S&P 500, Jeremy Grantham says"

Ummm, yes.*

From Mark Hulbert at MarketWatch, February 17:

How an overheated IPO market this year could derail U.S. stocks 

     IPO excitement would be a challenge for the stock market.

Jeremy Grantham has a new and provocative argument for why the U.S. stock market will produce mediocre returns this year.

Grantham is the co-founder of GMO, the Boston-based investment firm. He has been bearish on the U.S. stock market for more than a decade and, so far at least, he’s been wrong.

Yet Grantham commands a wide following on Wall Street. Though early in forecasting both the bursting of the internet bubble and the bear market during the global financial crisis, Grantham had the last laugh. Most stock-market analysts would disagree with Grantham’s current bearishness, but worry that they dismiss his arguments at their peril. 

Grantham’s latest bearish case is that U.S. stocks could be sabotaged this year by an overheated IPO market. In a recent 2026 outlook event at GMO, Grantham said:

“My prediction is that 2026 is going to see a level of IPO excitement that we haven’t seen in a while. My guess is that at least two of the private giants (OpenAI, Anthropic, SpaceX) will go public, and this is likely to put pressure on the U.S. market later in the year. … Post-IPOs, initially, maybe the market rises, but longer term, as more stockholders are able to monetize, that will create a challenge for the U.S. market.”

How much of a challenge for the stock market would such IPO “excitement” cause? GMO calculates that, historically, a 1% increase in the stock market’s total market capitalization because of IPOs corresponds to a 7.5% decrease in the market’s subsequent 12-month return.

Since the U.S. stock market’s total market cap is currently around $50 trillion, a 1% increase would require an IPO from a company with a value of at least $500 billion. The AI companies Grantham mentions would come close to that threshold or exceed it, given their recent valuations in the private market....

....MUCH MORE
*Subjects near and dear: supply, demand, liquidity etc. 

October 2008 - IPOs Produce Smallest Gains Since 1995 as Offerings Increase

Supply and demand. The one effect I can guarantee is the sopping up of billions of dollars and yuan* that would otherwise go into currently trading issues. IPO exits are not only a sign of a top but actually help bring them on by removing some liquidity....

December 2018 - "Nasdaq, 'Tech,' & IPOs are in for Gut-Wrencher"

The Fed's interest rate moves are not that big a deal.
I know that runs counter to a lot of commentary but the upticks are not a problem. Yet.
The bigger headwind facing the market is the Fed's balance sheet unwind sucking up liquidity.
And next year's planned mega-IPOs threatening to do the same....

September 2025 - "US IPO Activity On Track For Best Quarter Since Q1 2022"

This is what we were referring to introducing August 6's "Blackstone prepares portfolio companies for IPOs":

One of the reasons markets trend higher is a lack of new shares coming on to the market.

Over the last few months the IPO window has been opening and the offerings absorb buying power that would otherwise go into issues already trading.

See also: supply/demand.

The Wall Street marketeers are nothing if not opportunistic.

And depending on how much stuff they are primping, packaging, and pushing, this is why stock offerings tend to mark the short/intermediate-term tops in markets.

Just something to be aware of, not a hard and fast rule.

Regarding Mr. Grantham, though he is historically early—keeping in mind that if you are too early, you're not early, you're wrong, I think he is right about the market direction later this year, if not the exact trigger we will point back to.

Anyhoo, we've been keeping track of the G-man's prognostications for a very long time. Here's the outro from a December 2022 post:

....Grantham's problem, shared by moi, is that just because one sees an anomaly, there really isn't any reason to think the market will act on it in the time frame that you think it might.

Way back in 2010 we were posting "Grantham’s ‘Horrifically Early’ Calls Challenge GMO".

Fast forward to June 2020 and Mr. G. was going short, which we dutifully noted. Followed by November 2020's: "Grantham's Short Call Cost His Hedge Fund Over $2 Billion".

One example of where Mr. Grantham isn't just early but wrong is seen in 2012's: 

Vaclav Smil Takes on Jeremy Grantham Over Peak Fertilizer

We posted the whole of Mr. Grantham's Nov. 15 Nature piece for fear it would go behind Nature's paywall.
To date it hasn't. Also to date I haven't come through on my assurance in Nov. 24ths "Jeremy Grantham "On the Road to Zero Growth" as His Co-head of Asset Allocation Does the Full Monty". I promise I'll get to it.

We have almost as many posts on Professor Smil as we do on Mr. Grantham. This is the first time they've been together. I feel very uncomfortable being on the opposite side of Mr. G on just about anything but in this case Smil is right.

From The American:
Jeremy Grantham, Starving for Facts....

Finally, as one commenter at Cowen's Marginal Revolution put it: 

Jeremy Grantham sells ideas for a living. He is and always will be primarily a salesman, and he is very good at his job. A salesman wants to persuade you by engaging you in any way possible, but in particular by engaging your emotions. He is not interested in a deep understanding of all sides of an issue; he only needs to know enough to engage you. A deeper understanding would in fact be harmful to his needs, as his certainty is part of the appeal; a deeper knowledge would lead to doubts and uncertainties that might un-nerve the buyer.

Mr. Grantham avoids a deeper understanding of the ideas he is peddling almost instinctively; he is not so much argumentative as dismissive; he does not concede that there is any doubt at all to dispute. He doesn't truly care about the long term; he is selling medium-term fear to short-term clients. He only needs (or wants) to know enough to complete the sale. Personally, I'm not buying, but I can see why he is successful as a salesman. As a font of wisdom, not so much. The interview was interesting only in so far as it made clear how people are profiting from promoting apocalyptic climate fear.

And from October 2019:

How Good (or bad) Are GMO and Jeremy Grantham's Market Calls?