Comparable to the Internet bubble period! This indicator from Deutsche Bank shows that the US stock market is extremely overheated
Deutsche Bank AG strategists pointed out that the level of margin debt in the United States is approaching historical highs, even surpassing the levels during the tech bubble, indicating that market enthusiasm is extremely high and may pose a threat to the credit market. Recently, margin debt on the New York Stock Exchange surged by 18.5% within two months, reflecting a trend of investors using leverage to purchase stocks. Strategists warned that this situation could lead to an expansion of high-yield credit spreads in the future
According to the Zhitong Finance APP, credit strategists at Deutsche Bank have indicated that margin debt in the United States (a metric reflecting the scale of funds borrowed by investors to purchase stocks on the New York Stock Exchange) is beginning to reach excessive levels, which could pose a potential threat to the credit market.
The team of strategists led by Steve Caprio stated that, based on certain indicators, the level of margin debt has surpassed that during the U.S. tech bubble and is approaching historical highs. These strategists have tracked margin financing debt as an indicator of market sentiment for years, but on Thursday they elaborated on this for the first time, citing that "the degree of market euphoria is nearing an uncontrollable critical point."
In the two months ending June 30, margin debt on the New York Stock Exchange surged by 18.5%, as American households and investors utilized leverage provided by brokers to purchase stocks. According to the report, this is the fastest pace at which investors have re-leveraged to buy U.S. stocks since the end of 1999 or mid-2007.
Caprio wrote that this "overheated" situation could ultimately have adverse effects on credit performance. He noted that the current growth rate of margin debt aligns with a scenario where U.S. high-yield credit spreads could widen by 80 to 120 basis points over the next 12 months.
The strategists indicated that if unexpected tariff reduction measures occur, or if the Federal Reserve's policy shift exceeds investor expectations, then the optimism in the market may continue
