Amid the recent hype surrounding ChatGPT, Wall Street increasingly anticipates artificial intelligence will change how markets operate.
A JPMorgan survey found that 53% of traders believe AI will be the technology with the biggest influence on future trading.
That figure is more than double what the survey found a year ago.
‘Big Short’ investor Michael Burry warned stocks would crash and rallies wouldn’t last. Here are 6 of his key tweets in 2022, and what they meant.
“The Big Short” investor Michael Burry suggested the S&P 500 could plunge below 1,900 points.
The Scion Asset Management chief based his prediction on how past crashes have played out.
Burry said brief rallies were likely, and joked about his penchant for premature predictions.
Michael Burry, the hedge fund manager of “The Big Short” fame, rang the alarm on the “greatest speculative bubble of all time in all things” in the summer of 2021. He warned the retail investors buying up meme stocks and cryptocurrencies that they were headed towards the “mother of all crashes.”
The Scion Asset Management chief’s grim prediction may be coming true, as the S&P 500 and Nasdaq indexes tumbled by 19% and 33% respectively in 2022. In tweets posted in May 2022 then subsequently deleted, Burry took credit for calling the sell-off, explained why he expects further declines, and cautioned against buying into relief rallies.
Here’s a roundup of Burry’s best tweets about the stock-market slump:
The pandemic crash was just the start
The S&P 500 index has rebounded strongly from the pandemic crash in the spring of 2020, rising from a low of 2,192 points to around 3,800 points today. However, it could halve in value to below 1,900 points over the next few years, Burry tweeted on May 3, 2022.
When the S&P 500 has crashed in the past, it has traded lower several years later, Burry noted. He pointed to the index bottoming 13% lower in 2009 than it did in 2002, 17% lower in 2002 than it did during the Long-Term Capital Management fiasco in 1998, and 10% lower in 1975 than in 1970.
If the benchmark index follows that historical pattern, it could trade 15% lower than its level in the spring of 2020, Burry said.
There may be epic but short-lived rallies
A “dead cat bounce” refers to a temporary rebound in stock prices after a significant fall, often because speculators buy shares to cover their positions.
They often occur during major declines in the stock market, Burry said in a May 4 tweet. The implication is that investors shouldn’t get their hopes up about any rallies in the coming months, as they’re likely to be brief respites that won’t result in a market recovery.
Burry noted that 12 of the 20 largest one-day rallies in the Nasdaq index took place as the dot-com bubble burst, while nine of the S&P 500’s 20 biggest one-day rallies occurred in the aftermath of the Great Crash in 1929.
Don’t be fooled by stocks rebounding
Stocks could stage multiple rallies before the crash is over, Burry warned in a May 5 tweet.
He noted that after the dot-com bubble burst, the Nasdaq rallied 16 times by more than 10% — gaining on average 23% each time — on its way to a 78% decline at its nadir.
Burry also emphasized that after the Great Crash of 1929, the Dow Jones index rallied 10 times by more than 10%, rising by an average of 23% each time, before bottoming at a 89% decline.
Stocks are on a dangerous trajectory
The US stock market appears to be following the pattern of previous bubbles, leaving it poised for a monumental crash, Burry noted in a May 8 tweet.
The Scion chief pointed to the S&P 500’s trajectory over the past 10 years, noting it was strikingly similar to the index’s chart for the decade leading up to the dot-com crash, and the Dow’s chart for the 10 years before the Great Crash of 1929.
Burry suggested that human nature was behind the consistently decade-long buildups, and implied that history is repeating itself.
Burry predicts correctly, but early
Burry appeared to take a victory lap in a May 10 tweet, suggesting he believes the stock-market crash that he’s been warning about has finally arrived.
The Scion boss joked he was early with his prediction, just as he was during the mid-2000s US housing bubble.
Burry also nodded to Elon Musk calling him a “broken clock” last year, after the Scion chief bet against Tesla stock, predicted it would collapse in value, and questioned Musk’s motives for selling his company’s shares.
Stocks are set to tumble a lot further
7/7 SLIDES
Amid the recent hype surrounding ChatGPT, Wall Street increasingly anticipates artificial intelligence will change how markets operate.
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A JPMorgan survey found that 53% of institutional traders believe AI or machine learning will be the technology that has the biggest influence on trading over the next three years. Last year, only 25% of survey respondents held that view.
“We continue to see strong momentum towards electronic trading, as seen by 100% of survey respondents predicting an increase in electronic trading over the coming years,” Scott Wacker, JPMorgan’s global head of FICC e-sales, said in a statement included in the survey.
To be sure, AI technology has been revolutionizing Wall Street for years. For example, the vast majority of trades are already executed by algorithms.
And many asset managers have been using some type of AI, according to Bloomberg Intelligence’s 2022 US Institutional Equity Trading study.
But since OpenAI’s language tool ChatGPT broke onto the scene in November, the bot has proven competent in writing articles, dating-app messages, and emails, giving rise to predictions on which jobs could soon be replaced by AI.
“We’re seeing a lot of new entrants in the fixed income market which is really pushing the electronic agenda for the whole industry,” Wacker maintained. “It’s an exciting time for the electronic and automation space right now, as we look to offer clients added choice of execution options.”
