Margin debt growth slows sharply as stock market warning signs build

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City.Jeenah Moon | ReutersThe pace at which investors are borrowing money to invest in stocks has cooled substantially, raising concern that the stock market may be due for a fall.Recent FINRA data shows the annual growth in margin debt fell to 31.4% in September from 53.7% in May, Bank of America technical strategist Paul Ciana pointed out in a Friday note. Ciana warned that slowing borrowing momentum from extreme levels has been associated with previous market peaks.May's growth rate in 2026 was the fourth highest since 1998, according to a BofA analysis. The three higher extremes took place in 2000, 2007 and 2021 — all of which preceded stock market declines.Earlier this year, borrowing was increasing much faster than stocks were rising. Analysts view high borrowing levels as a contrarian signal, similar to bull-bear sentiment indicators. At $1.48 trillion, margin debt in September is 1.5% below June's record of $1.5 trillion. High leverage can have snowball effects in a market downturn. Lower prices trigger demands for additional collateral or forced sales, which accelerate a downturn. Individual invest...