The popping of the bubble in the US stock market is not over yet. Investors should not get overly excited about a stronger start to the year for the market, Jeremy Grantham, a co-founder and long-term investment strategist of GMO, warned.

The article released on Tuesday says that the 84-year-old money manager calculated that the S&P 500 could be about 3,200 at the end of the year. That would equate to a nearly 17% full-year decline and a 20% yearly drop from current levels. Grantham believes the index is likely to be below that level for some time in 2023, including around 3,000.

"The range of problems is greater than it usually is — maybe as great as I've ever seen," Grantham said.

"There are more things that can go wrong than there are that can go right. There's a definite chance that things could go wrong and that we could have basically the system start to go completely wrong on a global basis."

Grantham, one of Wall Street's most well-known bears, also suggests that the index could fall to around 2000. In his view, that would be a "brutal decline."

Value strategies struggled with poor returns in the decade following the global financial crisis as growth stocks led the longest bull market in US equities on record. Now, as the Fed tries to curb high inflation with aggressive rate hikes, value strategies are experiencing a resurgence. The GMO dislocation strategy, which is buying long-value stocks and selling short equities that are valued at unrealistic growth expectations, gained nearly 15% last year through November.

Value performed much better in the past year and outperformed growth during that period. Prior to that, growth had been steady for 10 years, although costs had been higher in previous decades. "In the value versus growth range, value is still much more attractive than growth," Grantham explained. "In the range of value versus growth, value is still much more attractively positioned than growth." Value stocks could outperform growth stocks by 20 percentage points over the next year or two, he added

As to what might be attractive right now, Grantham says an investor could divide the value shares into four quartiles. The third group, consisting of fairly cheap shares, did well last year and is no longer super attractive. However, the cheapest quartile, which did not have the best year, could be poised to hold up best.

Grantham believes that further pain in the stock market is now similar to the bursting of bubbles following other rare explosions such as in 1929, 1972, and 2000.

While the first and easiest phase of the bubble burst is over, the next phase could be more complicated. Seasonal activity in the market in January and during the current period of the presidential cycle could support the recovery in the market at the beginning of the year.