Margin Debt Plunged as Stocks Tumbled and High-Fliers Got Crushed. But Leverage Still Gigantic, Long Way to Go | Wolf Street

Leverage is the great accelerator of stock prices on the way up and on the way down. And the one part of leverage that we can see plunged in January by the largest dollar-amount ever, and by one of the largest percentages ever.

Stock market margin debt, after a historic spike during the Fed’s QE money-printing and interest-rate-repression extravaganza that started in March 2020, plunged by $80 billion in January from December, the largest dollar-decline in the data, which goes back to 1990, and the third month in a row of declines, to $830 billion, according to FINRA today:

But many high-flying stocks have gotten totally crushed, one by one, many of them started getting crushed in February a year ago, with many dozens of these high-fliers down 60% to over 90% from their highs. And leveraged bets by enthusiastic retail investors on these stocks were brutally unwound, either voluntarily or via margin calls.

Margin debt is the great accelerator on the way up because it creates buying pressure with borrowed money, and on the way down because it creates forced selling pressure.

Margin Debt Plunged as Stocks Tumbled and High-Fliers Got Crushed. But Leverage Still Gigantic, Long Way to Go | Wolf Street