Margin debt peaked in October. The Nasdaq was a month behind and peaked in November. Since then, margin debt has dropped by 17%, and the Nasdaq has dropped by 27%. And in terms of stock market leverage, that’s the tip of the iceberg.
This is how stock prices and margin balances are linked. High leverage in the stock market is a precondition for a spike in stock prices and a precondition for a massive sell-off, which then unwinds that leverage. It takes leverage to go to these kinds of extremes.
But nothing compares, neither in dollars nor in percentages nor in sheer beauty, to the near-vertical spike in margin debt from March 2020 through October 2021, during the Fed’s $4.7 trillion money-printing binge and interest rate repression mania, and all of it is now unwinding:Massive Stock Market Leverage Unwinds amid Brutal Bloodletting | Wolf Street