Don't expect a massive drop to signal the end of the longest bull market in history, investor and GMO founder Jeremy Grantham said Thursday.
"This will be limping along; three steps down, two steps back. It's not a typical experience," Grantham, who is famous for calling the last two major bubbles in the market, told CNBC's Wilfred Frost.
Grantham's comments come ahead of the bull market's 10-year anniversary. Since March 9, 2009, the S&P 500 has skyrocketed more than 200 percent.
"I was really hoping there would be a magnificent bubble ending to this, as there had been to the three great recent experiences," he said referring to the tech bubble bursting, the housing crisis and Japan. "They were all classic. They ended with euphoria and a rapidly accelerating stock market. They're easy; you know they'll be followed by an abject decline. This one, I was hoping that would happen. It doesn't look like it will and, therefore, you're going to have a decline of a different nature."
Stocks received a strong boost over the past decade as the Federal Reserve used traditional and nontraditional tools to stimulate the economy following the financial crisis, particularly interest rate cuts and quantitative easing. However, the Fed has struggled to reverse some of these policies.
The Fed kept its benchmark rate at zero from the financial crisis until 2015. Since then, the central bank has hiked rates nine times, but they still remain well below historical levels.
Earlier this year, the Fed said it would be "patient" in hiking rates moving forward, but Grantham says the central bank will have a tough time boosting stocks moving forward.
"You can't get blood out of a stone," he said. "At these prices, even the bears and the bulls and everyone in between at GMO agree that over a long horizon, like 20 years, the U.S. market will be delivering 2 or 3 percent real [returns]. In the last 100 years, we're used to delivering perhaps 6 percent."
"This is not incredibly painful, but it's going to break a lot of hearts when we're right," Grantham added. "Now, if you stay away from the U.S. — which I absolutely would — in emerging markets I think investors can do better than 6 percent, or 8 percent if you're tilted toward value."
Emerging market stocks are off to a strong start this year. The iShares MSCI Emerging Markets ETF (EEM) bounced more than 7 percent since January, recovering some of the steep losses suffered in 2018. Last year, EEM plunged more than 17 percent.
"Emerging markets are the future," Grantham said, noting he is especially bullish on China given its demographic trends. The Shanghai Composite is up 24.6 percent this year, recovering all of its losses from last year.
"They have the people and the faster growth and, increasingly, they direct their efforts in a very intelligent way," he said. "China in particular is cranking out their percentage of people taking engineering and hard science. So they're now in total a much bigger country but in total massively out-producing the U.S. in the number of engineers and scientists. And as that goes on, it makes it difficult for them not to take the lead in-- in one area after another in science."