Thought It Was Just Korea... Warning Over U.S. Margin Investing at "Pre-Global Financial Crisis Levels"

U.S. Margin Debt Surges 54% Over the Past Year
Expert Warns: "Approaching Pre-Financial Crisis Levels"
Stock Market Flashes Red When Growth Exceeds 40%

It has been revealed that the amount of money borrowed by U.S. investors from securities firms for investment purposes has surged by more than 50% over the past year. This phenomenon is being evaluated as reaching levels observed just before the dot-com bubble and the global financial crisis.

On July 13 (local time), MarketWatch reported that in the U.S., margin debt—the amount investors borrow from securities firms by using account balances as collateral—has recently risen sharply.

Wall Street sign in the US. Photo by Reuters Yonhap News Agency

Scott Opsal, Chief Investment Officer (CIO) at Leuthold Group, stated that the current scale of margin debt in the U.S. amounts to approximately $1.4 trillion (about 2,092 trillion won), with a growth rate of 54% over the last 12 months. CIO Opsal explained, "The recent steep rise in margin debt reflects investors' excessive optimism."

According to Leuthold Group's analysis, similar spikes in margin debt growth were observed during the dot-com bubble in 2000, right before the global financial crisis in 2007, and at the stock market peak in 2021 during the COVID-19 pandemic. Each of these periods was followed by a sharp decline—namely the bursting of the dot-com bubble, the financial crisis, and the stock market downturn in 2022.

Notably, CIO Opsal assessed the 54% growth rate in margin debt as crossing into the "overconfidence" zone. He warned, "Historically, when the growth rate of margin debt reaches 40%, it is a warning signal for the S&P500 index," adding, "Increasing leverage for stock market investment is equivalent to stepping on the accelerator."

Based on Leuthold Group's past analysis of U.S. stock market fluctuations, he stated, "There is no need to worry about the stock market until the growth rate of margin debt becomes uncontrollable," but also emphasized, "When investors start borrowing more aggressively, the situation deteriorates. This is an issue of investor behavior."

Leuthold Group had previously analyzed credit transaction increases by dividing them into 10 segments, and found that in the top 10% segment—similar to the current situation—the S&P500 index declined by an average of 0.5% over the next 12 months. At the 2021 peak, the S&P500 experienced a steep adjustment, plunging 19.4% over the following year.

This content was produced with the assistance of AI translation services.