‘Big Short’ investor Michael Burry warns about market plunge
Investors may be only halfway through a debilitating market downturn that has already hammered stocks and leading cryptocurrencies, according to “Big Short” investor Michael Burry.
Burry, the boss of Scion Capital Management, warned that company earnings are next to suffer from the effects of surging inflation and Federal Reserve interest rate hikes that have weighed on major stock indices and crypto tokens.
“Adjusted for inflation, 2022 first half S&P 500 down 25-26%, and Nasdaq down 34-35%, Bitcoin down 64-65%,” Burry tweeted on Thursday. “That was multiple compression. Next up, earnings compression. So, maybe halfway there.”
The broad-based S&P 500 closed out its worst first-half performance since 1970. The tech-heavy Nasdaq posted its worst quarter since 2008 and its worst first half on record.
Meanwhile, the price of bitcoin is down more than 70% from its all-time high of $69,000 last November — with several cryptocurrency firms scrambling to weather “crypto winter.”
Goldman Sachs analysts said current market levels have only priced in a minor recession — and warned that a sharper stocks selloff is still possible.
“Much of the valuation de-rating this year has been due to higher rates/inflation,” the Goldman analysts said in a note Thursday, according to Bloomberg. “Unless bond yields start to decline and buffer rising equity risk premiums due to recession fears, equity valuations could decline further.”
Like Burry, the bank’s strategists predicted that corporate earnings could suffer in the second half of the year as higher costs and slowing consumer spending weigh on bottom lines.
Burry issued his latest warning on the same day that the Fed’s preferred inflation gauge delivered another decades-high reading.
While inflation is showing some signs of leveling off, the latest Commerce Department data also showed a slowdown in consumer spending — a worrying sign as more banks warn of a higher recession risk.
Earlier this week, Burry argued that the Fed could end up reversing course on its plan for sharp interest rate hikes due to signs that some retailers are battling the “bullwhip effect” — a supply chain phenomenon in which product demand forecasts don’t match actual sales, leading to wild swings in inventory levels.
Burry suggested that retailers will be forced to lower prices to get rid of their excess inventory, thereby cooling inflation and lessening pressure on the Fed to hike rates.
Burry, whose bet against the subprime housing crisis was chronicled in the 2015 film “The Big Short,” also projects a coming divide in the labor market — with white-collar employees facing potential cuts while blue-collar workers remain in high demand.