Margin Debt Growth at Levels Seen at Past Market Tops, Leuthold Warns

According to CNBC, margin debt has grown by more than 40% over the past 12 months, a threshold seen at prior market peaks in 2000, 2007 and 2021, according to data from Leuthold Group. The S&P 500 has returned about 22% over the past year, only about half the rate of growth in margin debt. Leuthold wrote that the current 54% absolute margin debt growth and 26% excess margin debt growth over the last 12 months both exceed historical trigger points in its study. Scott Opsal, Leuthold Group's chief investment officer, said that when people become too enthusiastic and too tolerant of risk, things usually roll the other direction, calling the setup very bearish. Margin debt reached $1.4 trillion in May, the most recent month available, according to Finra data. Opsal noted that when borrowing slows, demand for stocks also slows, setting up the market for difficult times ahead. He added that the artificial intelligence trade has likely drawn many margin players into the market, with assets in leveraged ETFs nearly doubling in two months last spring, underscoring a willingness to take on risk. Opsal warned that margin calls could accelerate any downdraft, particularly if data center buildout stocks begin to crack.