The S&P 500 communications services sector has started 2023 as the top-performing group on the broad index.
The sector that’s home to Meta, Netflix and Match has picked up 12% after sliding 40% last year.
The rotation in market leadership has extended to other hard-hit groups including consumer discretionary.
The communications services group has emerged as the S&P 500’s best-performing sector in early 2023, highlighting the shift in market leadership after stocks sank into a bear market last year.
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The S&P 500 communications services sector has gained more than 12% since trading in the new year began. Most of the group’s constituents have been rebounding. Early winners include Warner Bros Discovery and Netflix as shares have soared by 50% and 23%, respectively.
The upswing in the sector that hosts communication and media companies arrived after it sank 40.4% in 2022. It was the worst performer of the S&P 500’s 11 groups last year.
Investors have been bargain-hunting after the sector was hammered down by a mix of macroeconomic headwinds and company-specific issues. The prospect of high inflation hurting consumer spending contributed to stock losses last year for Netflix and Match. The parent of Tinder and other dating sites tumbled 69% in 2022 but it has picked up 23% in 2023.
‘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
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And Facebook parent Meta has jumped 18% after losing more than 60% last year. Meta and Match were among the top 10 biggest losers on the S&P 500 in 2022.
The rotation in market leadership is also on display in the consumer discretionary, information technology, and real estate sectors, among others. Gains in 2023 for those groups range between 9% and nearly 7%.
By contrast, the S&P 500 consumer dictionary sector fell 37.6% last year, the second-worst performance on the broad index.
“While much of the communication services sector has experienced gains in 2023, the three-week rally has done little to remedy substantial market capitalization losses since the end of 2021,” S&P Global Market Intelligence said Tuesday. The group’s five largest companies have lost about $1.4 trillion in market cap since the end of 2021, it said.
