Two legendary Wall Street investors turn bearish

Photo (c) Malte Mueller - Getty Images

Are stock market storm clouds gathering?

Wall Street has enjoyed a huge bull run through most of 2023, with the Nasdaq gaining 34% since the beginning of the year. Can it last?

It’s worth noting that two legendary Wall Street investors have lately sent out bearish signals. 

Warren Buffet, chairman of Berkshire Hathaway, recently invested in three national homebuilders. But Securities and Exchange Commission (SEC) filings show that Berkshire Hathaway has sold more stock than it bought in the second quarter of the year.

Dr. Michael Burry, who made over $1 billion shorting the housing market before it crashed in 2008, has now placed a huge bet against the stock market. An SEC filing shows Burry, who was featured in the book and movie “The Big Short,” has “shorted” the S&P 500 and Nasdaq 100 to the tune of $1.6 billion. Burry is betting that amount of money that stocks are headed for a steep sell-off.

In particular, the SEC documents show Burry has soured on regional banks in the U.S. and Chinese stocks in general. But he’s not out of the market completely. In the second quarter, he increased his fund’s exposure to travel and healthcare.

Is there still a bull case?

While a few other market watchers have warned of a downturn for months, there are still plenty of bulls on Wall Street.  Wharton School of Economics Professor Jeremy Siegel told CNBC recently that he expects the stock market to reach new highs by the end of the year.

"This is such a strong market," Siegel said in an interview with the business network. "Lower inflation and a stronger economy and good guidance and good profits, what's to stop this market now?"

Another factor bolstering stocks is continued strong corporate earnings in the face of rising interest rates. Should the Federal Reserve pause its rate tightening in September, some market analysts predict stocks could benefit.

What to do

While it can be helpful to know what knowledgeable investors think, financial experts usually advise individual investors not to try to time the market – even the pros have a hard time doing it.

Dollar-cost averaging – investing some money in stocks each month whether the market is up or down – is generally cited as a prudent investment strategy that will pay off over time. Having a diversified portfolio is also seen as a way to reduce risk from market fluctuations.

Doing research and consulting a trusted and objective investment adviser is always a smart move, especially before making a major investment. ConsumerAffairs researchers have checked out some of the best advisers and provide a complete rundown here.

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