The recent rise in interest rates has encouraged investors to take on less margin.
For some perspective, take today’s chart which overlays the 24-month change in inflation-adjusted margin debt on top of the inflation-adjusted S&P 500.
Conclusion…
The stock market has tended to struggle soon after a surge in margin debt.
And…
Stocks have tended to rally soon after a significant contraction in margin debt.
What is margin debt?
Margin debt is money borrowed from a broker for the purpose of buying stock.
What is a margin call?
A margin call refers to a broker demanding that an investor deposit additional money into their margin account to meet the required minimum.