Michael Burry Warns of 1987-Style Crash Despite Record Highs
Michael Burry, the investor immortalized in “The Big Short,” is maintaining his bearish bets even as the S&P 500 surges to new highs. In a Tuesday Substack post, Burry said he still believes a major market top is possible, and that a sell-off reminiscent of 1987 could occur.
His warning comes as the S&P 500 jumped 1.9% to its first record close since June, buoyed by strong earnings and falling oil prices. The tech-heavy Nasdaq Composite soared 2.7%, extending its two-day gain to nearly 5%.
Why Burry Sees a Self-Reinforcing Rally as Fragile
Burry argues that the market’s advance is being fueled by a feedback loop: declining volatility encourages systematic investors, such as vol-targeting funds, to increase leverage. “Remember, the market going up on falling volatility forces vol-targeting funds to leverage up, and brings leverage from other momentum strategies into play,” he wrote.
This dynamic can amplify gains but also magnify losses when sentiment shifts. Burry’s stance is not new—he has been a vocal skeptic of the AI boom, questioning whether demand for AI infrastructure is sustainable given the financing arrangements behind it.
Burry’s Short Positions: SOXX, Micron, Nvidia, and More
Burry disclosed he continues to hold short positions in the iShares Semiconductor ETF (SOXX), Micron, Nvidia, Caterpillar, Palantir, Tesla, and Applied Materials. He said all positions remain profitable except his bet against Nvidia, which has rallied strongly amid AI enthusiasm.
Despite the pain from Nvidia, Burry remains confident in his long-term outlook, but he added that he would cut losses if trades move decisively against him. “Again, shorting is not for everyone,” he wrote. “I must short. Most should not.”
Market Context: Earnings and Oil Drive the Rally
The latest record close was driven by stronger-than-expected corporate earnings and a drop in oil prices as hopes grew that the Strait of Hormuz would reopen to maritime traffic. Lower energy costs ease inflationary pressures, which could support risk assets in the near term.
However, Burry’s warning highlights the risk that the rally may be built on leverage and momentum rather than fundamentals. If volatility spikes, the same systematic strategies that amplified gains could unwind quickly, accelerating a downturn.
For media operators and publishers, the story underscores the importance of monitoring market volatility and its potential impact on advertising and subscription revenues. A sharp sell-off could tighten corporate budgets and reduce spending on content and marketing.
As the market watches for signs of a pullback, key indicators include the VIX, which remains near multi-year lows, and the pace of earnings revisions. A sudden jump in the VIX or a string of disappointing earnings could trigger the deleveraging Burry anticipates.
In the coming weeks, watch the Federal Reserve’s policy stance and any shifts in the yield curve. A hawkish surprise or an inversion deepening could be the catalyst that breaks the current momentum.
So far, the market has shrugged off Burry’s warnings, but history shows that bearish calls can be early before proving correct. The 1987 crash came after a prolonged bull run, and many skeptics had been wrong for months before the October meltdown.
For now, Burry’s persistence serves as a reminder that leverage-fueled rallies can reverse sharply when conditions change. Whether the current record is a top or a pause before further gains remains to be seen, but the risks are clearly on his radar.
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