Michael Burry Says S&P 500 Looks ‘Uncannily Close’ To 2000 — And ‘Busted’ Stocks Could Be The Winners

“The Big Short” investor Michael Burry drew comparisons between the current stock market and the dot-com era, calling the current market “uncannily close” to 2000, while adding that the S&P 500’s internal breadth looks unusually weak even as the index remains near record highs.

In his latest Substack note, Burry analyzed stocks that have fallen sharply from their highs, asking whether the market’s biggest laggards could become the unexpected winners if today’s bull market eventually gives way to a bear market.

Burry split the S&P 500 into three groups, namely, “Leaders,” “Broken stocks,” and “Busted stocks”.

Burry defined “Leaders” as stocks which are within 10% of their 10-year highs. “Broken stocks” are those which are down 20%-40% from these highs, while “Busted stocks” are those which are down more than 40%.

“The Big Short” investor noted that the current setup closely resembles the months surrounding the March 2000 market top.

He highlighted that as of the Oct. 6 record high, 23% of S&P 500 stocks were already Busted, with the median Busted stock down 55% from its high. In 2000, 32% were Busted, with a median decline of 52%.

However, Burry said the bigger warning comes from the leadership itself. Just 15 S&P 500 stocks closed at record highs on Oct. 6, while only 97 were within 10% of their highs, which is strikingly similar to the numbers during the March 2000 peak.

More importantly, 58% of today's Leaders were already 5%-10% below their highs, which Burry describes as unusually “soft” leadership. “It is striking,” Burry added.

He found that the Oct. 6 record was at or beyond the 95th percentile on all seven of his key market-top measures, which is a combination he says has appeared only during the final months leading into the 2000 peak.

Burry examined what happened to beaten-down stocks after previous market tops, saying that the March 2000 peak was the standout.

He highlighted that eighteen months after that top, Busted stocks gained 18% on a median basis, while Leaders plunged 50%. At 12 months, Busted stocks were up 19%, compared with a 33% decline for Leaders.

Burry said that this makes the current cohort of deeply beaten-down stocks particularly interesting, while adding that simply being down 40% does not make a stock cheap.