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Matt's Market Insights


A potential red flag continues to rise. Last month saw an increase in margin debt of nearly 5%, the greatest jump since January this year. That took margin debt (as measured via the NYSE) to $401 billion as of the end of September. In nominal terms, this is the highest that NYSE margin debt has ever been. Can you guess when the last two peaks in margin debt occurred? If you guessed 2000 and 2007 you were right. And hopefully no reminder is needed about what happened to the markets shortly after those peaks.


So what does this tell us? Typically, increasing margin debt can be viewed as an indicator of investor sentiment. When investors are willing to borrow abnormal amounts of money to throw at the markets, it's a sign of extreme bullishness. While this can be good for the markets momentarily, it often precedes a large decline. This happens as ... Log in or subscribe to continue reading.

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