America's economy has been doing well, so what about the S&P500?

A very surprising but clear path has been trodden by the US economy over recent months.

Despite inflation having reached 40-year highs across the country, the US Dollar has been a stalwart currency and held its strength against a flagging Euro and an absolutely plummeting British Pound.

The focus within the currency trading markets has been on the Pound reaching a 20-year low, and on Citi's recent prediction that inflation in the United Kingdom could reach 18% by January.

Conversely, the US Dollar has not been faced with such apocalyptic predictions, and the economy is appearing to hold itself up well.

The stock markets, however, is where the moot point is. Yes, the Dollar is strong compared to some other Western major currencies, but whilst the British Pound languishes, the FTSE 100 is doing well.

So what about US stocks?

Some degree of concern has been voiced by leading economists regarding one of the United States' major indices, the S&P500, with an alarming prediction that it may decline by as much as 26% over the next year.

That is not a prediction to be taken lightly, as it amounts to a drop from today's 4,000 point value to 3,000 points!

British veteran investor Jeremy Grantham, who is co-founder and chief investment strategist of Grantham, Mayo, & van Otterloo, an investment management firm based in Boston, a Boston-based asset management firm.

Mr Grantham yesterday predicted that the S&P500 may well decline in value by as much as 26% over the next year, having stated that he is looking to take a stance against what he considers to be 'junk bonds' and the tech-heavy NASDAQ index.

Mr Grantham's words have been taken seriously, as he built much of his investing reputation over the course of his career by identifying speculative asset bubbles as they were unfolding.

He also avoided investing in Japanese equities and real estate in the late 1980s during the peak of the Japanese asset price bubble, and avoided technology stocks during the Internet bubble of the 1990s so he has been studying the performance of tech stocks for many decades.

Mr Grantham expects tech stocks to tumble and corporate defaults to soar when the superbubble bursts, sending tech stocks and junk bonds downward, and cites demographic issues and national agendas such as climate policy to be contributing factors.

It is of course only a prediction, but it's an alarming one at that.