I am not trying to freak you out. But…
+ Margin debt is very high. That does not mean that the market is about to crash.
+ But it does mean that you should not own much stock on margin — if any.
If your stocks fall, your broker (or whoever lent you the money to buy your stocks) will sell your stocks — usually at the most inconvenient (a.k.a. expensive) moment. Like a big (maybe temporary) dip.
It’s not a bad idea now to take a little off the table — sell a little of your biggest gainers, especially those with nosebleed P/Es. Or maybe ones with no P/Es.
Take a little cash. Buy yourself a new car. Play with the house’s money, as the gurus say.
OK. That’s it.
The rest of this blog is not to freak you out. This is a good opportunity to show the benefits of AI as an investment tool. Here’s my full conversation with Perplexity. At the bottom, there’s a URL which will bring you to my Perplexity conversation in all its glorious formatting.
Harry: How high is stock margin debt in the u.s. today? How worried should I be? Has high margin debt caused stock market crashes in the past?
Perplexity: U.S. stock margin debt is at or near a record nominal high-roughly 1.2-1.3 trillion dollars as of this spring-so it is clearly elevated, but by itself it is more of a “fragility/yellow flag” than a precise crash signal. You should be alert and conservative about your own leverage, but not assume that high margin debt alone means an imminent market collapse.
How high margin debt is now
FINRA’s latest margin debt series (the standard reference) shows outstanding margin balances around 1.22 trillion dollars in the most recent monthly reading, down slightly from about 1.25 trillion the prior month but up sharply-almost 40%-from roughly 880 billion a year earlier.
Several market data providers and commentaries note that this puts margin debt around or above previous nominal peaks in 2021-2025, when it first crossed the 1 trillion mark.
As a share of GDP or total U.S. equity market cap, margin debt is high but not dramatically higher than recent cycles; some analysts stress that relative measures look elevated yet not unprecedented, which tempers the alarm versus the raw dollar figure.
How worried you should be
For the overall market:
Many researchers argue margin debt is mostly a coincident indicator: it rises because stocks have already been going up and investors feel confident, rather than reliably leading tops by itself.
Elevated margin debt increases market fragility: if prices break, forced liquidations and margin calls can accelerate a downdraft, making corrections sharper than they would be in a low-leverage environment.
The empirical record is mixed-some big spikes in margin debt have preceded major corrections, but others have not, so using it as a stand-alone crash-timing tool has a poor track record.
For you personally as an investor:
The main risks are leverage risk (losses are magnified) and margin-call risk (you can be forced to sell at the worst possible time, locking in losses and missing the recovery).
When system-wide margin is as high as it is now, the odds of violent, fast corrections go up, so keeping your own margin usage modest and stress-tested (e.g., can your portfolio stomach a 30-40% hit without a margin call?) becomes more important.
Has high margin debt caused crashes before?
+ 1929: In the late 1920s, margin borrowing was extremely aggressive (often 90%+ leverage), and rapid growth in margin debt preceded the October 1929 crash; scholars argue that the high leverage significantly worsened the crash and the subsequent depression.
+ 2000 (dot-com): Margin debt surged to then-record levels in the late 1990s; when tech stocks rolled over, forced selling by leveraged investors amplified the downturn, although the fundamental tech bubble and earnings reality were the primary drivers.
+ 2007-2008 (housing/credit crisis): Margin and broader leverage were high going into the crisis; again, surging debt preceded the crash and contributed to forced deleveraging, but the root causes were in housing, structured credit, and the banking system.
+ 2021-2022: U.S. margin debt hit a then-record around 936 billion in late 2021, then fell over 25% by mid-2022 as stocks sold off and positions were unwound, illustrating how high leverage can intensify a downturn once markets break.
So historically, periods of very high and especially rapidly rising margin debt have often lined up with late-cycle, over-exuberant markets and have amplified crashes-but they have not been the sole cause of those crashes.
Practical takeaways
Treat current margin debt as a sign that speculative appetite and leverage are high, which raises the potential severity of the next correction, not as a precise timing tool
Focus on your own risk:
+ Keep leverage conservative versus your net worth and income.
+ Stress-test against deep drawdowns to avoid forced selling.
+ Pair any margin use with diversified, liquid holdings rather than concentrated, illiquid bets.
If you’re comfortable sharing: roughly what percentage of your equity portfolio is currently financed on margin?
Harry: I didn’t answer that question, because I have no margin.
Here’s the link to the entire conversation above: Click here.
See you tomorrow: Harry Newton
