Michael Burry, best known for predicting the 2008 financial crisis, said the current US equity rally could end in a 1987-style market crash, warning that markets may be nearing a major top.
Burry said falling market volatility has encouraged systematic and volatility-targeting funds to increase leverage, creating a self-reinforcing rally that could quickly reverse if investor sentiment weakens.
The investor remains bearish on the AI-driven market boom and continues to hold short positions against several technology and industrial companies, including Nvidia, Tesla, Palantir and Micron, while cautioning that short selling is a high-risk strategy
The Man Who Predicted The 2008 Crash Has A New Warning for Investors; A Potential 1987-Style Sell-Off
The investor who famously predicted the 2008 financial crisis says the current US stock market rally bears similarities to the conditions that preceded the 1987 Black Monday crash
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Summary
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Michael Burry warns that the current US equity rally could end in a sharp sell-off mirroring the 1987 stock market crash. The investor is famous for predicting the 2008 housing market collapse in 'The Big Short'. He outlined his bearish outlook in a Substack post on Tuesday, reports said.
His warning comes despite major indices recording strong gains. On Tuesday, the S&P 500 climbed 1.9 per cent, achieving its first record finish since June. The Nasdaq Composite advanced 2.7 per cent, extending its recent rally.
Burry warned against the sustained market optimism, saying a continued rise in the S&S 500 could attract even more money into equities before a potential reversal. "I continue to believe it is possible the markets are near a major top," Burry wrote.
Volatility Drives Leverage
Falling market volatility is driving systematic and volatility-targeting funds to increase their equity exposure. Burry said this dynamic heavily fuels the current market rally.
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Lower volatility forces these funds to deploy more leverage. Momentum-driven investment strategies further amplify this buying pressure.
This creates a self-reinforcing cycle. Burry said such mechanics leave the markets highly vulnerable to sudden shifts in investor sentiment.
Echoes of Black Monday
The investor compared the current leverage build-up to conditions preceding October 19, 1987, known as Black Monday. On that day, the Dow Jones Industrial Average plunged 22.61 per cent, dropping 508.32 points in a single trading session and ending a bull run that started in August 1982.
Trading volumes surged during the 1987 crash, as more than 604mn shares changed hands—about three times the daily average. The New York Stock Exchange lost more than $500bn in market value in a single session.
This one-day percentage decline stands as one of the steepest drops in the history of the US market. It exceeded the DJIA's 12.8 per cent drop during the 1929 Wall Street crash.
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Targeting the AI Boom
Burry frequently criticises the artificial intelligence-led market rally, having repeatedly expressed concerns over elevated valuations in US equities, particularly stocks linked to the AI boom. He said that demand for AI infrastructure relies on financing arrangements that may not prove sustainable over the long term.
He maintains short positions against several major technology and industrial firms. These targets include Micron, Nvidia, the iShares Semiconductor ETF, Caterpillar, Tesla, Palantir and Applied Materials.
He remains confident in the long-term outlook for these bearish bets, although he is prepared to exit positions if they move decisively against him. All of these short positions remain profitable, except for his bet against Nvidia. Burry said that short selling is a high-risk strategy that is unsuitable for most investors. -- sugest clickbaity header