Burry Likens US Stock Market to 2000 and Points to Beaten-Down Shares

what happened

Investor Michael Burry, known for his book The Big Short, compared the current US stock market with the situation of 2000. He said the market is near record highs, yet the S&P 500's internal breadth looks unusually weak. He shared these views in his latest Substack note, as reported by Stocktwits.

Burry divided S&P 500 stocks into three groups: leaders, within 10% of their 10-year highs, broken stocks, down 20% to 40%, and busted stocks, down more than 40%. He said that as of the October 6 record high, 23% of index members were busted, close to the 32% seen in 2000. Only 15 S&P 500 stocks closed at record highs that day.

Burry noted that twelve months after the March 2000 peak, busted stocks were up 19%, while leaders had fallen 33%. He cautioned that a 40% decline does not make a stock cheap, and said today's busted stocks trade at a median price-to-earnings ratio of about 17.2, versus 10.2 in 2000. He is also looking at small-cap value and international equities, and says he remains essentially fully invested alongside his short positions.

why it matters

For markets, this points to narrow leadership, with the index held up by a small number of companies. If capital does rotate from large leaders into smaller companies and value stocks, the largest names could feel the pressure, though Burry himself says the outcome is still unclear.

market impact

US stocks: narrow market leadership and possible outflows from large leaders into small caps (SPY, QQQ, Russell 2000)

instruments