Michael Burry thinks the stock market may finally be approaching the moment he’s been warning about. Earlier this month, writing on his Substack, Cassandra Unchained, the famed investor behind ‘The Big Short,’ declared that “the market has jumped the shark” and suggested history was beginning to rhyme with previous market peaks.
Burry pointed to the explosive rally in technology and semiconductor stocks, warning that investors may be witnessing conditions reminiscent of the dot-com era. “The end of…this…is nigh,” Burry wrote.
Yet one market indicator suggests the bull market may still have more room to run.
According to Giuseppe Sette, co-founder and president of Reflexivity, investors may be focusing on the wrong catalysts. First it was tariffs. Then it was war with Iran. Then oil prices and inflation. More recently, some investors have pointed to a wave of high-profile IPOs as a potential warning sign.
So far, none of them have ended the rally.
Burry Sees Echoes Of The Dot-Com Bubble
Burry’s latest warning comes after a blistering rally in technology stocks and AI-related names.
The investor highlighted data showing that some of the biggest winners in the Nasdaq 100 have posted gains rivaling—or even exceeding—the strongest advances seen during the dot-com era. The semiconductor sector has been among the market’s hottest areas, fueled by AI enthusiasm, accelerating capital spending, and strong earnings growth.
Burry argued that the current market environment looks “so familiar” to the period leading up to the bursting of the technology bubble in 2000.
The veteran investor, who famously profited from the collapse of the housing market, said he had established significant short positions and suggested investors consider reducing exposure to high-momentum technology stocks.
He also acknowledged his reputation as “the boy who cried wolf” in markets.
“Today, however, I am telling,” Burry wrote.
The Indicator Called ‘Screw Value Investing’
Sette is watching a very different signal.
The Reflexivity co-founder points to what he jokingly calls the “Screw Value Investing” indicator: the spread between the average price-to-earnings ratio of the 100 largest companies in the S&P 500 and the next 100 largest companies.
The logic is straightforward.
As long as the market’s biggest companies continue trading at a premium valuation relative to the rest of the market, the bull market remains intact.
The chart shows that periods when large-cap leadership strengthens and valuation premiums widen have historically coincided with healthier market environments. When that premium narrows or disappears, market leadership weakens and risks tend to rise.
Graph: Reflexivity
Why Expensive May Still Be Bullish
Traditional value investors might view elevated valuations as a warning sign.
Sette sees them differently.
The willingness of investors to consistently pay higher multiples for the market’s dominant companies reflects confidence in future earnings growth and the durability of their business models.
Today, that group includes many of the market’s AI leaders, including Nvidia Corp (NASDAQ:NVDA), Microsoft Corp (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), Amazon.com, Inc. (NASDAQ:AMZN) and Broadcom Inc. (NASDAQ:AVGO).
That matters not just for stock pickers but also for investors in broad-market ETFs such as State Street SPDR S&P 500 ETF Trust (NYSE:SPY) and Vanguard S&P 500 ETF (NYSE:VOO), whose performance has become increasingly tied to the fortunes of a small group of mega-cap AI leaders.
As long as investors continue assigning premium valuations to those companies, Sette believes the broader bull market remains on solid footing.
That doesn’t mean the rally is invincible.
Eventually, every bull market ends. But according to Reflexivity, investors may be better served by watching whether the market’s largest companies lose their valuation advantage rather than focusing on the latest macro scare.
Tariffs haven’t ended the rally.
Oil hasn’t ended it.
War hasn’t ended it.
And despite Burry’s warnings, this indicator suggests the bull market may not be ready to end either.
Photo: emin kuliyev/Shutterstock
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