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Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here. |
Let's investigate a bonus chart we've set aside for some time. This chart touches on the realm of leveraged financing or, as many know it, margin debt. Margin debt involves investors borrowing from brokers to buy securities, pledging their current or newly bought stocks as loan collateral.
While margin debt has grown 11% this year, SPX has risen 13.4%. Such gaps in growth were evident in years like 2002 and 2019, both of which were precursors to notable market dips. The last time we covered this chart, the SP500 was up 18%; less alligator divergence now, but we think there is more deleveraging to come.
Lower levels of margin might result from a mix of steeper borrowing costs (with margin debt often pegged to the secured overnight funds rate [SOFR]) and wane in investor confidence. It's a scenario that might transport some market watchers back to the bear market echoes of 2000 and 2008.
Currently, FINRA Margin Debt stands at $681.23 billion, a rise from the prior month's $644.17 billion. Yet, it's slightly below last year's $683.45 billion and notably distant from the peak near $1 trillion in 2021. The next update to margin debt will be on August 28th.
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Learn more about the Market Situation Report written by Tier 1 Alpha. |
