The chart that has Michael Burry worried about the stock market
Michael Burry is warning that a shift in household wealth could leave the stock market vulnerable to a long and significant downturn. “The Big Short” investor pointed to a graphic produced by Wells Fargo showing that U.S. households now hold a larger share of their net worth in equities than in real estate — a rare condition that has only occurred twice before. “This is a very interesting chart, as household stock wealth being higher than real estate wealth has only happened in the late 60s and late 90s,” Burry said on an X post Wednesday. “The last two times the ensuing bear market lasted years.” Burry, who has been warning of a bubble in the AI boom, called himself “Beary Burry” in light of the ominous historical signal. When equities dominate household balance sheets, market sell-offs can transmit more quickly to sentiment and spending, amplifying losses during downturns, Burry said. Wells Fargo, however, argued that the very same chart explains why policymakers are unlikely to tolerate a deep bear market. “A K-shaped economy led by the wealth effect means a bear market likely triggers an economic downturn, which neither the Fed nor the Gov’t can afford, especially into midterms,” the firm wrote. The Wall Street firm said the near-term risk-reward for equities “remains favorable” because the economic and political costs of a major drawdown are so high.
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