What changed in margin borrowing
The boom in borrowed money fueling stock bets is losing steam. On a 12-month basis, margin debt growth eased to 31.4% in September after clocking 53.7% in May. According to a Bank of America analysis, the May 2026 growth rate placed fourth among readings since 1998, with only 2000, 2007 and 2021 sitting higher, and each of those preceded declines in equities.
Earlier this year, leverage was ramping faster than stock prices. That imbalance is often read as a contrarian warning, much like overly bullish sentiment surveys. Even with the recent cool-off, margin balances remain hefty: 1.48 trillion dollars in September, or 1.5% below June's record 1.5 trillion dollars.
Why strategists are uneasy
Paul Ciana, a technical strategist at Bank of America, flagged the slowdown in a Friday note and cautioned that when borrowing momentum eases from extreme levels, it has lined up with prior market peaks. BofA also pointed to other stress markers, including wider high-yield credit spreads and a shift into defensive groups such as healthcare and consumer staples.
That rotation has its own twist. In a Tuesday note, BofA's equity derivatives team said defensive flows have lifted those sectors to "bubble-risk levels," adding, "These dynamics provide further evidence that markets continue to move towards a more bubble-like state."
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Leverage can make down moves snowball. Falling prices can trigger margin calls or forced selling, which can speed up a slide. The human side is real too: Tesla investor Hy Luu refinanced his home, raising 30,000 dollars, which he put toward trimming his margin debt amid the stock's 2022 drop.
What this means for your portfolio
There is a counterweight. As Ciana noted, "Typically, risk assets such as the S&P 500 rebound after midterms unless more severe downside risks materialize." The bottom line: slowing leverage growth alongside wider junk-bond spreads and a defensive tilt is a mix that has preceded trouble before, and margin can magnify that hit for anyone borrowing against their portfolio.
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