Margin loans taken out by investors to buy high-flying stocks such as Nvidia (NVDA), Tesla (TSLA) and Palantir (PLTR) have risen 40% since the stock market bottomed in April of this year.
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Data from the Financial Industry Regulatory Authority (FINRA), a private U.S. self-regulatory organization, shows that margin loans among American investors reached $1.18 trillion at the end of October, up 39% from $850 million in April when the market crashed due to turmoil from President Donald Trump’s tariffs.
Margin loans are when investors, typically individual or retail investors, borrow money from their brokerage firm to buy stocks. The 40% rise in loans to buy stocks has corresponded to an 87% gain in the S&P 500 since the benchmark index bottomed on April 8 when the market was in the throes of a tariff tantrum.
Bad Omen?
Many analysts and economists warn of danger during periods of rising margin loans, leverage, or debt to buy stocks. Market crashes in the past have almost always been preceded by periods in which investors take out increasing sums of debt to finance their stock purchases, including in 2000 and 1929.
FINRA reports that total margin debt among U.S. investors rose for a sixth consecutive month in October and is currently at an all-time high. Margin loans have not previously exceeded $1 trillion, and FINRA points out that, looking out over the past 12 months, margin debt among investors has grown at twice the rate of the S&P 500 index.
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