U.S. margin debt growth slowed in September while balances stayed near a record, as Bank of America technical strategist Paul Ciana said prior market peaks were associated with cooler borrowing after extreme growth.
Data from the Financial Industry Regulatory Authority (FINRA) put September’s annual margin-debt growth at 31.4%, compared with 53.7% in May. FINRA data showed an outstanding balance of $1.48 trillion in September, 1.5% below the $1.5 trillion peak recorded in June. The 31.4% annual growth rate shows that September’s balance was higher than a year earlier, even though it was 1.5% below its June peak. The growth rate measures how quickly the total changed; the balance shows how much debt remained outstanding.
CNBC reported that Ciana made his observation in a Friday note. CNBC said a separate Bank of America analysis ranked the May growth rate fourth-highest since 1998. Only readings in 2000, 2007 and 2021 were larger; each was followed by a stock-market decline, according to the analysis. The ranking covers annual growth, not the dollar value of debt.
CNBC said borrowing outpaced stock gains earlier in the year. Analysts cited by the outlet regard high borrowing as a contrarian signal, comparable to measures of bullish and bearish investor sentiment. Margin debt is money investors borrow to buy stocks, so the balance reflects positions supported by leverage.
CNBC reported that Bank of America’s equity derivatives team cited widening high-yield credit spreads and a shift into defensive sectors, including health care and consumer staples. In a separate Tuesday note, the team said the shift had pushed those sectors to what it called “bubble-risk levels.” The team compared the current pattern with defensive-sector rotations during the late 1990s and the Covid rally. It said the signals showed markets moving toward “a more bubble-like state.”
Ciana said the U.S. midterm elections might reduce market uncertainty, CNBC reported. He said the S&P 500 has usually moved higher after midterms, except when major downside risks intensify.
