The only measure of stock market leverage that is reported monthly is margin debt at brokers, via FINRA. Much of the stock market leverage isn’t reported, such as Securities Based Lending, and even banks and brokers that fund this leverage don’t know the leverage in the overall market, or even the leverage of their client if that client is levered as well at other banks. Funds can leverage at the institutional level. There is leverage associated with options and other equities-based derivatives, etc.
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 margin debt is still gigantic, with just a small portion having been unwound. The blistering historic spike in margin debt during the Fed’s $4.7 trillion QE in 22 months was a historic outlier, peaking last October with a two-year increase of 67%….
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