Stock prices aren't simply a function of earnings.

Perhaps with complete transparency and a reasoning, logical market they might be closer to that, but that's not what we have. Even in that case you've got more than earnings to concern yourself with, like risk assessments, d/e ratio, dividend rate, and much more.

Earnings are a fundamental factor. Forward earnings as well. In the last bull run, market caps skyrocketed way beyond sensible forward P/E because rates were 0% and growth equities were worth the risk. Now that rates are going up, the risk profile has changed. In the last year growth stocks that have not shifted to value stocks have been slaughtered. Think meta, snap, etc. At the end of the day there are way more factors than earnings influencing price. The options market even has a big impact on underlying assets. Anyways the risk profile has changed and value will become a stronger factor.

IIUC the point is that index funds abstract the price of some stocks even further from earnings. Because a large percentage of the trade volume in those stocks comes purely from the index fund trades, rather than direct trades that would cause proper price discovery. So when the ETF bubble bursts, those stocks will see and even larger correction down than otherwise.

Happy to be corrected though.

What part doesn't "make sense"? If he predicts earnings going down and prices going down even more selling 99% of his portfolio - down to one single stock - seems consistent with that view.