High Margin Debt Levels Reflect Investor Optimism

HIGH MARGIN DEBT LEVELS REFLECT INVESTOR OPTIMISM

Margin debt is approaching its 2018 peak (chart below) despite evidence that the economic rebound is weakening amid the expected arrival of the second wave of the Coronavirus. This is but the latest of a series of indications of the surprisingly level (at least to me!) of investor complacency that has characterized capital markets in recent years.

Investor optimism is presumably based on the assumption of a swift economic recovery and/or quick development of an effective vaccine. We are on record as being skeptical of a “V’ recovery, favouring other letters of the alphabet, which prompts us to maintain our cautious view of markets.

There is some reason for optimism given that November begins the seasonally strongest period for stocks. A smooth completion of the upcoming US election would also bolster bullish prospects. However, this being 2020, we will await evidence before adopting a strongly bullish stance.

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