S&P 500 (top), NYSE margin debt 12-month ROC (center), & NYSE margin debt (bottom)
margin rate of change
Source: BofA Merrill Lynch



I keep seeing NYSE margin debt showing at record high as somehow a bearish indicator. This may not be supported by the historical data.

Merrill’s Stephen Suttmeier points out that, to the contrary, Margin Debt and S&P500, have often moved together. Indeed, when we look at the rate of change, this has in the past corresponded to a secular breakout in markets.

Here is Suttmeier:

“NYSE margin debt stood at a new record high of $401.2b and exceeded the prior high from April of $384.4b. This confirms the new S&P 500 highs and negates the bearish 2013 set-up that was similar to the bearish patterns seen at the prior highs from 2000 and 2007, where a peak in margin debt preceded important S&P 500 peaks (see Chart 1 on page 2). In addition, a breakout for NYSE margin debt preceded/confirmed the breakout for the S&P 500 in 1980 (Exhibit 2).

In other words, a secular breakout for the US equity market in the early 1980s coincided with a big breakout in the absolute level of NYSE margin debt.

That last sentence is key: If the rate of change data somehow corresponds to past shifts in secular markets from bears to bulls, this is potentially a very significant factor.




S&P 500 & NYSE margin debt
NYSE Margin debt
Source: BofA Merrill Lynch


NYSE margin debt, Net Tabs, & weekly relative ranks
Stephen Suttmeier, CFA, CMT
Chart Talk, Market Analysis
BofA Merrill Lynch

Category: Credit, Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

12 Responses to “NYSE Margin Debt at Record High”

  1. jlj says:

    Any idea whose debt we are talking about? Individual investors or institutions or hedge funds or what percent of each?

  2. coleyc says:

    We have been seeing this chart a lot lately. I wonder if it would be more helpful to compare the servicing costs of the debt in comparison to the other recent highs of total debt. With interest rates so low wouldn’t you expect a higher debt level than in 2000 and 2007 before any “signal” took place?

  3. pseudoinvest says:

    These are all nominal figures, right? I’d be more interested in real levels or margin debt to market capitalization ratios over time. Log is okay. It’s too easy to reach record levels in nominal terms and get carried away predicting the end of the world.

    • If Stocks AND Margin interest are reported in nominal numbers, what difference would it make? ITS A COMPARISON BETWEEN 2 NUMBERS. Adjusting both for inflation — multiplying by some numerical deflator to reflect that — would not make any difference.

  4. Mr.-Vix-It says:

    You can just look at 10 year rolling returns to know that we are already in a secular bull market and only in the early stages. The trend can clearly be seen in the following link with 10 year rolling returns that clearly indicate there is no way we can still be in a secular bear market: http://allfinancialmatters.com/wp-content/uploads/2013/07/SandP500_10-Year_Rolling_Returns_with-CPI.pdf

    When 10 year rolling returns go positive for an extended period after a secular bear, there is no going back. There will be positive returns for many years to come. We will get pullbacks (hey there was even a crash in ’87 during a secular bull) but this market is now built for buy and hold. You can average down, up, or sideways. It doesn’t matter as the market will bail you out over the next 15-20 years and move higher.

  5. Hmm, taking only the evidence before us, and starting with the charts: I see 5 breakouts of NYSE margin debt. In the 1972, 1980 and 2007 margin-debt breakouts, I would have wanted to exit stocks shortly to avoid imminent deep losses. In 1982, I would’ve been very happy to have been in stocks, but with the interest rates at that time, I would also have been very happy to have been in bonds. In 1977, I would’ve had to suffer some pain before receiving a modest amount of gain.

    Looking at the commentary, I see a lot of confirmation bias on both sides of the bull/bear divide.

  6. Francisco Bandres de Abarca says:

    The primary conclusion from this analysis is mostly utter rubbish.

    Mr. Suttmeier leads us to believe that the market is in a position similar to that of 1980, without mentioning some rather important macro relationships that have changed in the intervening period (e.g., that of the S&P 500 Index price in relationship to national GDP). Do you think the fact that the broad stock market was priced at about 20% of the value of GDP in 1980–whereas it is now priced at about 120% of GDP–might be an important consideration? Might that make a difference when considering margin debt level sustainability? And I’m to tell myself ‘this is like 1980′? Bull. Shit.

    If he were making an argument that the current wavering in the ROC of margin debt is similar to the wavering in the ROC as seen before the tops in 2000 and 2007, then I’d say, yeah, he’s got a point. Hold on and keep your stop-loss orders updated for the blow-off top.

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  8. rd says:

    I found this article today about the flow of money into stock mutual funds and ETFs so far this year interesting along with the margin debt discussion:


    Why would we not view margin debt as an indicator of a potentially weak hand putting money into the market in a similar fashion as mom-and-pop investors? If $277B put into the markets by small investors is viewed as an indicator of why a significant YTD rise has occurred, then why would a build-up to a margin level of $400B that can suddenly drop to $150B in a few months not be an indicator of a potentially destabilizing future event that can significantly worsen a decline:


    Yes, margin debt is a small player in the overall total value of the stock market (1.6%):


    but it is now twice the percentage of the market that it was for most of the past 50 years, indicating that margin calls could have much greater influence today than most times in the past. Nearly all of the other periods during that 50 years when margin debt was over 1.2% resulted in significant market volatility (1978-1982, 1987, 2000, 2007-2009). The 1972-74 bear market didn’t need significant margin debt to get it started – it had plenty of other factors to assist it. Margin debt also spiked up after the 1982 market bottom but that was the best market buying opportunity since 1932 and presumably these people were looking at their various valuation parameters and figured that out.

    So margin debt is another indicator that is not perfect and is not an actionable trading tool (like Shiller’s CAPE and Tobin’s Q), but I would not view it with equanimity as I think it shows an increasing amount of the market is held in weak hands that could be forced to sell indiiscriminately with little notice. It wouldn’t trigger the drop, but it would certainly throw gasoline on it.

    It is interesting that we have seen margin debt steadily climbing over the past 20 years so that “normal” levels today would be viewed as sky-high several decades ago. Valuation metrics like Shiller’s CAPE, Tobins Q, and dividend yield have been showing a similar steadily rising pattern overthe past 20 years. Have we really licked the valuation limits that have generally marked market tops over the past 100+ years of investing history?

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