Michael Burry Warns Stock Market Could Be Months Away From A 2000-Style Reckoning — ‘The Preconditions Seem Set For Fireworks’
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The S&P 500 closed at a record high on Oct. 6, but Burry argues that the headline index is telling only part of the story, while the market breadth has deteriorated sharply underneath.
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Burry said that his bear market ratio, which is the percentage of S&P 500 stocks trading at least 20% below their 10-year highs, stood at 55% on Oct. 6, up from 47% when the index reached a record on Aug. 13.
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He found only one other instance in the past four decades when the S&P 500 reached a record high while most of its constituents were already in bear markets.
“The Big Short” investor Michael Burry is once again sounding the alarm on the stock market, arguing that a seemingly calm rally is masking a deterioration underneath the surface.
In his latest Substack note, Burry dug through decades of S&P 500 data to examine what happens when the index keeps hitting records while an increasing number of its stocks are already in bear markets.
A 2000-Like Warning Is Emerging, Cautions Burry
The S&P 500 closed at a record high on Oct. 6, but Burry argues that the headline index is telling only part of the story. Underneath it, market breadth has deteriorated sharply.
Burry said that his bear market ratio, which is the percentage of S&P 500 stocks trading at least 20% below their 10-year highs, stood at 55% on Oct. 6, up from 47% when the index reached a record on Aug. 13.
He found only one other instance in the past four decades when the S&P 500 reached a record high while most of its constituents were already in bear markets.
“That makes two times in four decades that the market made new highs with most of its stocks in bear markets relative to 10-year rolling highs. 2000 and today,” Burry said.
He also highlighted that his Fresh Drawdown Ratio stood at 27% in October, versus 53% at the March 2000 peak. Burry cautioned that today’s market has not yet reached the extremes of 2000, but the direction is what concerns him.
“If the market keeps going like it is, it could surpass 2000 within months, as broken stocks took a massive stepdown late in the summer, continuing into October,” he said.
Just 15 Stocks Hit New Highs, Burry Highlights
Burry’s other major warning sign is how narrow the market’s leadership has become. Only 15 S&P 500 stocks closed at new highs on Oct. 6, while just 97 were within 10% of a high.
At the March 2000 peak, the corresponding figures were also 15 stocks at new highs and 87 within 10%, he said.
