Margin of Error?

In yet another disturbing similarity to the late days of the internet bubble at the turn of the century, the chart below illustrates that margin debt has reached record-high levels while the P/E ratio of the Nasdaq is the highest since 2000.

A significant share of the margin debt that has accrued over the past year is the responsibility of new retail investors who are being encouraged to speculate in stocks using “easy to use” and “beginner-friendly” trading platforms. I am seeing more and more ads for these “services” appearing on the internet.

More ominous for the potential of a very sharp and swift market reversal is that the top 5 weightings of the S&P 500 account for roughly 23% of the index which amplifies potential market volatility (both down and up).

Rampant investor complacency, such as we are now seeing, has never ended well.

There are and will be, attractive risk/reward investment opportunities, but they are not to be found in the favourites of this “bubble” market.

If you found this post of interest, you’ll find the Global Investment Letter of value. To view free sample issues please visit: https://www.globalinvestmentletter.com/sample-issue/