Michael Burry’s notable bearish bet against the stock market, which first made headlines in August, has been a rollercoaster for investors. At the beginning, his position was met with skepticism during the AI-driven summer market rally. However, it gained credibility as the S&P 500 experienced a sharp decline in late October.
Recent developments, particularly the recent rally in the S&P 500, have rekindled the debate, once again putting Burry’s controversial bet under scrutiny in the ever-changing landscape of the stock market.
If he is still holding his position, Burry’s bearish investment, with a notional value of $1.6 billion, involves 40,000 put options linked to the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust ETF (QQQ). These two exchange-traded funds track the performance of the S&P 500 and the Nasdaq-100 indexes. As a result, every time these indexes surge, the returns from Burry’s put options diminish.
The S&P 500 has seen a remarkable run this month. Until November 9, the broader stock market index notched eight consecutive winning sessions, marking the longest streak since 2021. It reached a two-month high of 4,391 before closing the session at 4,347.
Had it risen for a ninth consecutive day, it would have marked the longest series of gains in nearly 20 years. US equities rebounded impressively from their autumn lows, putting the S&P 500 on course for a second consecutive week of gains.
Several factors contributed to this rally. The Federal Reserve’s decision to keep rates unchanged at its November 1 meeting boosted investor confidence, signaling that further rate hikes might be on hold for the time being. Additionally, the 10-year Treasury yield had been declining from its record-high levels. Meanwhile, the ongoing earnings season has been largely positive, with major S&P 500 companies like Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Meta (NASDAQ: META) all surpassing expectations.