Falling bond yields are supposed to be good news for tech stocks. Lately, they haven’t been, and Michael Burry thinks that odd pattern could stick around longer than most investors expect.
Burry is the investor who bet against the U.S. housing market before the 2008 financial crisis and reportedly made nearly $800 million doing so, a story later told in “The Big Short.” These days, his target is the AI-fueled rally.
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In a Substack chat, Burry said: “pain trades become widowmaker trades because they tend to last a very long time.” He added that while the consensus view holds that lower yields are bullish for stocks, “the pain trade continues to be rates down, Nasdaq down,”
The market gave him an example on Oct. 15. By early afternoon, the 10-year Treasury yield had dropped more than 10 basis points to roughly 5%, yet the Nasdaq had opened 1.34% lower as chip stocks kept sliding.
The next test, in Burry’s view, is whether the selling spreads to the Magnificent Seven.
Semiconductors have already fallen with rates, and if the biggest tech names follow, he said, “that would add conviction to our call for a ‘Red October.’” He has called the group market’s “Last Man Standing,” and earlier this month, he calculated that 55% of S&P 500 members were trading at least 20% below their highs.
It fits a broader theme he has pushed for weeks. In an Oct. 5 post on X, Burry said, “The stock market is quite obviously in its first stage of grief, denial,” adding that “per 2000 and 2008, this stage lasts 6-9 months.”
A day later, he calculated that Anthropic’s private-market value could buy 78 profitable S&P 500 companies, as reported by TheStreet.
Burry has narrowed his bet. Nearly all of his short exposure now sits in put options on the Nasdaq-100 and the VanEck Semiconductor ETF, known as SMH.Bloomberg / Getty Images
Wall Street’s quiet streak is cracking
Trading has picked up after a stretch of unusually low volume. The SPY fund traded at about 15% above average volume, and QQQ at about 25% above average volume, while falling stocks made up 79% of NYSE volume. Before that, the S&P 500 had its longest run without a 1% down day since 2020, according to TradingView.
That streak ended on Oct. 14. The S&P 500 fell 1.11%, and the Nasdaq dropped 1.88%. Technology was the worst-performing sector, and the Cboe Volatility Index jumped 10%. Only defensive sectors such as health care and consumer staples held up.
Cracks had been forming under the surface for a while. The Nasdaq-100 closed at a record on Sept. 22, yet the share of its members trading above their 200-day moving averages has dropped from 77% to 56% since mid-August, meaning fewer stocks are carrying the rally. SMH, the chip fund in Burry’s sights, has still climbed more than 67% this year, according to TheStreet.
Big money is still crowded into the same corner. Bank of America’s October fund manager survey found that long semiconductors were the most crowded trade, and managers named a disorderly surge in bond yields and an AI bubble as their top two risks.
How Burry is betting on a top
Burry has narrowed his bet. Nearly all of his short exposure now sits in put options on the Nasdaq-100 and the VanEck Semiconductor ETF (SMH). Both positions are roughly 20% out of the money.
His Nasdaq-100 puts expire in April 2027, while his SMH puts expire in June 2027. Nvidia alone makes up 19.6% of SMH. Burry believes the market is within “zero to nine months” of a significant top, as reported by TheStreet.
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The shift started in late September. On Sept. 28, Burry swapped several outright shorts for put options, saying new research led him to “move timelines up” from a previous base case of 2028. He covered his CoreWeave short without buying puts, noting that “Puts expire. Shorts do not.”
He hasn’t dropped every individual bet. Burry still holds puts on Oracle, Palantir, MetLife and Caterpillar on the side, and he called his Nasdaq-100 puts relatively cheap because volatility is low.
Burry is also watching the impact inflation has already had on household budgets. He pointed to a bag of chips that rose from $5.99 to $6.19 after costing $1.99 to $2.49 not long ago, arguing that slower inflation doesn’t undo higher price levels. “Pushing up that false ceiling hurts,” he said.
What investors should watch next
Not everyone buys his reasoning, not even a fellow “Big Short” investor. Steve Eisman called Burry’s argument about AI chip depreciation “too academic,” pointing to strong demand for older Nvidia chips.
CoreWeave, for example, holds a contract for older A100 chips that runs through 2029. Eisman sees reliance on fast-growing customers such as OpenAI and Anthropic as the bigger risk, as reported by TheStreet.
Burry’s timing hasn’t always been right either. He told investors to “Sell” in January 2023 and later admitted that call was wrong. The day after his recent denial post, the S&P 500 closed at a fresh record. Paul Tudor Jones, who also sees echoes of 1999, has said the rally could run for another 1 to 2 years.
Burry admits the bull could still surprise. “This last few months of the bull could be wild,” he wrote, adding that “the market top is made during this denial phase, which lasts 6-9 months, possibly longer than a year.”
Whether that top is weeks or months away, investors on both sides of the trade are watching the same signals: the Magnificent Seven, the bond market, and how much longer chip stocks can hold the line.
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