Margin Debt Jumps 8.3% in May

Margin debt is the amount of money an investor borrows from their broker via a margin account. Trading with a margin debt can magnify gains because an investor can benefit from the upside of any stock without having to invest 100%, resulting in greater profit. On the flip side, trading with margin debt can also exacerbate losses because if a stock's value were to depreciate, the investor may face a margin call and would need to come up with additional cash to reach the minimum requirement. Margin debt is often seen as a measure of investor sentiment and risk appetite. High levels of margin debt can signal confidence, but extreme spikes may also indicate excessive speculation, increasing the risk of market instability.

FINRA has released new data for margin debt, now available through May. The latest debt level is at $920.96 billion, up 8.3% from April. This marks the first monthly increase and highest debt level since January. The debt level is up 13.8% compared to one year ago. When adjusted for inflation, the debt level was up 8.1% month-over-month and up 11.2% year-over-year.

Let's take a closer look at the relationship between margin debt and the stock market, using the S&P 500 as our benchmark. The first chart shows the two series in real terms — adjusted for inflation to today's dollar using the consumer price index (CPI) as the deflator.

Margin Debt

Starting in 1997, a period well into the long-running bull market that began in 1982 and nearing the tech bubble, we can observe some interesting patterns:

  • Late 1999 - March 2000: Margin debt experienced a dramatic increase, peaking in March 2000. This coincided with an interim daily high for the S&P 500, although the market's highest monthly close for that year occurred later in August.
  • 2006 - July 2007: Another significant surge in margin debt began in 2006, reaching its peak in July 2007, just three months before the S&P 500 reached its peak.
  • February 2009: Following the financial crisis, margin debt hit a low point in February 2009, the same month the stock market bottomed out. Subsequently, margin debt began another substantial period of growth.
  • Post-COVID Pandemic (October 2021 - December 2022): We saw a similar pattern after the initial COVID-19 pandemic. Margin debt soared to an all-time high in October 2021, just two months before the S&P 500 reached its peak in December 2021. The market then bottomed in September 2022, and margin debt followed suit, reaching its most recent low in December 2022.
  • Late 2023 - Early 2025: The most recent increase in margin debt began in late 2023 and continued into 2025. The S&P 500 reached its inflation-adjusted all-time high in November 2024, while margin debt reached a relative inflation-adjusted peak in January 2025.
  • Now: Margin debt rose for the first time in four months, currently sitting 1.7% off its nominal January 2025 peak but 15.3% off its real inflation-adjusted peak. Meanwhile, the S&P 500 is 2.1% off its nominal peak but 3.8% off its inflation-adjusted peak from January 2025.

By examining these periods, we can observe a potential relationship between significant increases in margin debt and subsequent market peaks, as well as a correlation between market bottoms and troughs in margin debt.

Note on the data: The FINRA only posts the free credit cash accounts data back to 1997. The free credit cash accounts data back to 1980 is available on a fee basis from Haver Analytics.