GMO Warns of Potential Decline in U.S. Stock Returns Due to Rising Share Supply
GMO, the Boston-based investment firm co-founded by Jeremy Grantham, has issued a warning that increasing share supply could significantly reduce returns for investors holding broad U.S. index funds over the next year and a half. In its latest quarterly note, GMO highlighted how the number of shares in U.S. stocks is growing faster than previously seen—projected at 5% annually compared to historical averages—and warned this trend may lead to a potential 20% drop in returns if past patterns hold. The firm attributes much of this surge in supply to upcoming IPOs from major private companies like SpaceX, OpenAI, and Anthropic. These firms alone could add up to 6% of the total U.S. stock market once they go public. GMO also noted that passive index funds dominate trading activity today, making it harder for new shares to be absorbed without downward pressure on prices. The firm’s concerns are amplified by high levels of global equity ownership and limited cash reserves among investors, which could lead to forced selling as capital shifts toward these new listings.
