George Soros’s Short Bets Suggest a Stock Market Collapse

Soros Takes Bearish Position; Bets Stock Market Will Tumble

George Soros, the founder of the $4.5-billion Soros Fund Management LLC, is betting the stock market is going to fall. Soros does not believe U.S. stocks can sustain the Trump rally and expects the S&P 500 and broader markets, which are at record levels, to experience a significant drop or stock market crash.

Soros, who has a net worth of more than $25.0 billion, is not a fan of President Trump, and has been betting against the presidency since the November 2016 election. A staunch Democrat, Soros continues to add to his short selling of the stock market, even as the markets thrive.

It hasn’t panned out for him yet. Soros made some cautious bets in the lead-up to the U.S. elections but became even more bearish after Trump won. Soros, like most analysts, expected the markets to experience a serious drop if Trump won.

The opposite happened; the S&P 500 rebounded and enjoyed a four-month Trump Bump. Betting against Trump was a costly maneuver for Soros. It is estimated that Soros lost almost $1.0 billion after Trump won the U.S. election as stocks rallied to record levels.1

But that doesn’t mean Soros has changed his opinion on the state of the U.S. economy and fate of the S&P 500. If anything, Soros believes now, more than ever, that the S&P 500 and broader markets are going to experience a collapse or stock market crash.

Soros, who famously called Trump a “would-be dictator,” believes the S&P 500 and broader markets will fall because Trump will fail as a president. The S&P 500 is not being supported by strong fundamentals; it is being fueled by optimism that Trump’s pro-growth, pro-business policies will be good for corporate earnings and revitalize the stagnant U.S. economy.

That hasn’t happened yet. And eventually, fundamentals and stock valuations will need to run closer in step. Right now, S&P 500 valuations are in nosebleed territory with levels not seen since right before the dotcom bubble burst in 2000.

While stocks continue to trade near record levels, they haven’t moved much since the beginning of March. The Trump Bump has stalled and the bull-market is in jeopardy thanks to weak U.S. economic data, simmering geopolitical tensions, gridlock in Washington, and chaos in the White House.

As a result, Soros continues to believe stocks will fall. To prepare for that eventuality, Soros added additional bearish options to his portfolio in the first quarter. His two biggest plays are against large caps on the S&P 500 and small cap stocks on the Russell 2000 and have a potential value of $764.3 billion.2

He holds 3.3 million shares of the iShares Russell 2000 exchange-traded fund puts, a 36% increase from the previous quarter, carrying a potential value of $459.6 million. Soros also increased his position in SPDR S&P 500 puts by 162% to 1.3 million shares, with a potential value of $304.7 million.

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Sources:

  1. “Billionaire Investor George Soros Lost Nearly $1 Billion in Weeks After Trump Election,” Wall Street Journal web site, January 13, 2017; https://www.wsj.com/articles/billionaire-george-soros-lost-nearly-1-billion-in-weeks-after-trump-election-1484227167.
  2. “George Soros has added to his losing bets against the stock market,” CNBC web site, May 18, 2017; http://www.cnbc.com/2017/05/18/george-soros-has-added-to-his-losing-bets-against-the-stock-market.html.
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George Karpouzis is the co-founder of Learn-to-Trade and has been personally providing education and mentoring to over 3000 members since 1999. George has been trading in the stocks, options, futures and forex markets using technical analysis since 1986. With the help of advancements in trading technology the Learn To Trade program is now accessible worldwide. His background and passion for teaching brings an invaluable asset to our members. George is constantly striving to improve the program content and develop new strategic relationships for the benefit of the members. Add me to your G+

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