Does a New High in Margin Debt Mean The Market Has Peaked?
Margin debt hit a new high back February. The twitterverse was lit with hottakes about market tops and crashes.
Déjà Vu All Over Again
We went through this exact same exercise a year ago.
A new high in margin debt doesn’t mean the stock market has peaked or a crash is around the corner. It simply means the stock market has been going up. It’s a coincidence indicator. When the value of your portfolio increases you can borrow more on margin.
Tellingly, margin debt as a percentage of the S&P500 has remained the same as pointed out by Jake at Econompic
Margin debt (in %) did have a substantial run up from the early 1990's to mid 2000's, but concerns over the recent $ increase make no sense. pic.twitter.com/71R6G11uAz
— Jake (@EconomPic) March 31, 2017
The absolute dollar amount of margin debt like the stock market will continue to go up until it doesn’t.