• Michael Burry reiterates a bearish outlook, warning a 1987-style crash remains possible.
  • He suggests record highs may attract new inflows, potentially prolonging the rally.
  • AI-related stocks and momentum trades are cited as key warning signs.

Fragile Optimism

Michael Burry, the investor famed for betting against subprime mortgages before the 2008 financial crisis, is again sounding the alarm. In a recent Substack post, he cautioned that U.S. stocks could be nearing a major top, with a crash reminiscent of 1987 still on the table. Despite the S&P 500's relentless march to new highs, Burry remains steadfast in his bearish stance, arguing that the current environment mirrors the pre-crash exuberance.

"The market's strength is exactly what worries me," Burry wrote, according to people familiar with the matter. "Fresh highs attract new money, especially in momentum and AI-driven trades, which could fuel leverage and set the stage for a sharp correction."

The Rally's Temptation

Burry's warning comes as the S&P 500 and other major indices continue to set records, driven largely by a surge in AI-related stocks and a bullish sentiment among investors. He notes that these rapid gains in AI and semiconductor names are reminiscent of past speculative bubbles, where parabolic moves often precede significant downturns.

"The concentration in a few high-flying stocks is a red flag," he added. "When the tide turns, the unwinding could be violent."

A Contrarian Voice

Despite his persistent pessimism, Burry acknowledges that the rally could extend further before any downturn. "Record highs tend to draw in new participants, and that momentum can feed on itself," he explained. "But that doesn't change the underlying risk; it just delays the inevitable."

His comments have sparked debate among market observers, with some dismissing him as a perennial bear while others see his caution as prudent. A spokesperson for Burry declined to comment further when reached by phone.

Market Implications

Investors are left to weigh Burry's warnings against the backdrop of a robust economy and strong corporate earnings. The recent volatility in tech stocks, however, suggests that sentiment can shift quickly.

As one portfolio manager put it, "Michael Burry has been early before, but he's never been wrong about the risks. It's wise to keep an eye on the downside."

This article has been updated to clarify Burry's comments were made on Substack.