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Bank of America: Margin Lending Explosion Heralds Trouble for Stock Market

Annual Percentage Change in US Equity Margin Debt (White, Right Price Scale) and Dynamics S&P 500 Index (blue, left scale). Source: FINRA, Bank of America, Bloomberg

The volume of margin lending, the leverage used to buy stocks, has reached levels that in the past have foreshadowed weakness in the US stock market, Bank of America reported. As of the end of March, the volume of margin debt in the United States amounted to a record $ 823 billion, which is 72% higher than a year ago, Bloomberg writes, citing data from FINRA *.

* a private American corporation with SRO status to monitor compliance with the rules of trading in the OTC market. Former name – “National Association of Securities Dealers”

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“The S&P 500 tends to show weak performance over the 12 months following a 60% y / y increase in margin debt,” said Stephen Suttmeier, strategist at Bank of America. “We found ten such episodes that have taken place since the early 1930s.”

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