New milestone alert!
Investor margin debt exceeds $1 trillion for the first time ever.
Permabears around the world are ringing the alarm bells trying to convince you this is somehow bad for stocks.
“Margin debt” is money borrowed by investors from their brokers to purchase securities, using their investment portfolio as collateral.
According to data from the Financial Industry Regulatory Authority (FINRA), debit balances in customers’ securities margin accounts rose to $1.008 trillion, up from the highs this spring.
Angry people who have missed this historic rally want you to think too much margin debt is bearish.
We saw this sort of nonsense during the 2013-to-2018 period. The angries kept telling you “excessive” margin debt was somehow a bad thing.
The economists tried to scare you. They did their best to convince you historic highs in margin debt is a sign of impending doom.
They lied to you then.
And they’re lying to you now.
Here’s the current data showing margin debt hitting new all-time highs:
There has never been more money being borrowed to buy stocks, ever…
Seems scary, right?
The bears hate it when you borrow to win.
High Margin Debt Is Good
This is classic bull market behavior.
The surge in margin debt reflects growing risk appetite and investor confidence.
The chart above comes from my pal Stephen Suttmeier, who was Chief Equity Technical Analyst at Bank of America for 20 years.
Here’s what he has to say:
Historically, margin debt tends to rise with equities, supporting bullish trends rather than derailing them. The real risk comes when leverage starts to unwind.
We would worry if margin debt declines while the SPX rallies, a pattern that preceded major market peaks in 2000, 2007, 2018, 2019, and late 2021.
Stephen, now running Suttmeier Technical Strategies, shows a great chart of margin debt, but relative to the Wilshire 5000 Total Market Index.
The key is not to look at the total margin debt on an absolute basis but to look at the debt relative to the value of the total stock market:
“This ratio has rebounded over the last year,” Stephen adds, “but it remains well below prior peaks that either preceded or coincided with major highs for the SPX from early 2022, late 2007, and in 2000.”
Greed Is Good
Gordon Gekko is right: “Greed, for lack of a better word, is good”.
We’re seeing it in this chart.
We’ve seen it throughout stock market history.
Investors going out of their way to borrow money to buy stocks is not a bad thing at all.
I’m not sure why some people want you to think it is.
In fact, it’s the opposite.
New highs in margin debt is evidence of risk appetite.
People are buying stocks.
And that’s why stocks are going higher.
Don’t player-hate. Participate.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs