Data &
Technology
Research
Reports
Report Solutions
Reports Library
Actionable
Strategies
Free
Resources
Simple Backtest Calculator
Simple Seasonality Calculator
The Kelly Criterion Calculator
Sentiment Geo Map
Public Research Reports
Free Webinar
Pricing
Company
About
Meet Our Team
In the News
Testimonials
Client Success Stories
Contact
Log inLoginSign up
< BACK TO ALL REPORTS

Investors push leverage to record highs

Jason Goepfert
2020-12-29
Margin debt, money borrowed with stock holdings as collateral, rose to a record high in November, but remain low relative to market capitalization.

At various points over the past several years, the topic of margin debt has come up as a sign of investor excess. Every time we've looked at it, though, it hasn't suggested a reason for concern. 

Bears will likely start to grumble about this once again because debt jumped again in November to a record high. Investors have over $722 billion in loans borrowed against the value of their stock holdings. 

Like it has been in recent years, though, debt is still very low relative to the value of the overall stock market. When we've looked at it this way in the past, it hasn't been an effective measure, especially at peaks and it has become even less useful over the past 15 years or so. 

NYSE margin debt as percent of market capitalization

Even though margin debt is relatively low as a percentage of market capitalization, its growth has been picking up and is outpacing the growth in stocks. We've looked at this many times in the past, and seen that a high growth rate in debt relative to the growth in stocks was an ominous signal in 2000 and 2007, but it has been tame since then.

Now, it's starting to percolate. Over the past year, margin debt has grown nearly 13% faster than has the S&P 500, the widest spread in 7 years.


What else is happening

These are topics we explored in our most recent research. For immediate access with no obligation, sign up for a 30-day free trial now.

  • A look at the growth in debt vs the S&P going back to the 1930s
  • What happens when margin debt spikes from its lowest level in the past year
  • Debt is nearing a record high compared to the ability to service it
  • Other displays of leverage are hitting record highs
  • Looking at the probabilities that Monday could be a "breakaway gap"
  • Small-cap stocks suffered yet another intraday reversal

Stat Box

Monday marked only the 5th time since 1962 when the S&P 500 jumped more than 0.5% to a 52-week high, and yet there was more volume flowing into declining securities than advancing ones on the NYSE.

Sentiment from other perspectives

We don't necessarily agree with everything posted here - some of our work might directly contradict it - but it's often worth knowing what others are watching.

1. Investors have become very comfortable trading leveraged ETFs, thanks to a largely one-sided market over the past 6 months. [Wall Street Journal]

leveraged etf assets

2. In a one-way market, most things go that way. It's more common to see during downtrends when investors panic. But sometimes - like now - correlations within and among assets is extremely high. [Capital Spectator]

etf asset correlations

3. Investors seem to finally be warming up to small value stocks versus their large growth cousins...just like when the last true stock market bubble was peaking. [Marketwatch]

small value vs large growth stocks

DATA &
TECHnologies
IndicatorEdge
‍
BackTestEdge
‍
Other Tools
‍
DataEdge API
RESEARCH
reports
Research Solution
‍
Reports Library
‍
actionable
Strategies
Trading Strategies
‍
Smart Stock Scanner
‍
FREE
RESOUrCES
Simple Backtest
Calculator
Simple Seasonality
Calculator
The Kelly Criterion
Calculator
Sentiment Geo Map
‍
Public Research Reports
‍
Free Webinar
COMPANY
‍
About
‍
Meet our Team
‍
In the News
‍
Testimonials
‍
Client Success Stories
Pricing
Bundle pricing
‍
Announcements
‍
FAQ
© 2024 Sundial Capital Research Inc. All rights reserved.
Setsail Marketing
TermsPrivacyAffiliate Program
Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

Testimonial Disclosure: Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.