Margin borrowing among investors has surged sharply over the last year, increasing by more than 40% and moving toward territory that, historically, has coincided with market tops. According to Leuthold Group data, the current level of margin debt is comparable to what was recorded in the run-ups to the market peaks of 2000, 2007 and 2021.
Finra data show that margin debt totaled $1.4 trillion in May, the most recent month for which figures are available. Margin debt represents funds that investors borrow from brokerage firms to buy additional shares, using holdings in their accounts as collateral. While this mechanism amplifies purchasing power and the potential for gains, it also magnifies losses when positions move against borrowers.
The pace of margin borrowing has notably outstripped the performance of the broad market. Over the past 12 months, the S&P 500 has returned roughly 22% when dividends are reinvested, while margin debt expanded at a rate roughly double that figure.
"Today's 54% absolute margin debt growth, and 26% excess margin debt growth over the last 12 months both exceed the historical trigger points in our study," Leuthold wrote. The firm added that historically, "neither series spends much time above the threshold."
Leuthold's observation ties the recent surge in leverage to past episodes in which elevated margin growth preceded weaker one-year returns for the S&P 500. The firm’s analysis indicates that when margin debt growth has reached comparable levels, the subsequent 12-month returns for the index have tended to decline.
Signs of increased risk appetite extend beyond margin loans. Assets in speculative, leveraged exchange-traded funds swelled rapidly in recent months - in fact, during two months last spring those funds nearly doubled in asset size. That expansion reflects heightened demand for instruments that deliver amplified exposure to market moves and, correspondingly, greater potential for rapid gains or losses.
Market participants and observers will be watching whether elevated leverage translates into greater market volatility or pressures on equity prices should conditions change. For now, borrowing has pushed buying power higher even as broad-market returns lag the pace of credit expansion.