Indication suggests further escalation in stock market growth
In the ever-evolving world of finance, the current market scenario presents a fascinating mix of signals. As stocks continue to reach new highs, concerns about an impending correction linger, while some indicators suggest that the markets still have room to rise much further.
One such indicator is the level of securities loans, which, contrary to popular belief, is at a 20-year low. This might not seem like a cause for alarm, as the CLO market alone has grown significantly, reaching a staggering $1.4 trillion as of April 2025, up from $263 billion post-Global Financial Crisis. This active use of securities lending and credit leverage indicates a far cry from low levels of securities lending that are often associated with artificially inflated bubbles.
Another notable factor is the record-high nominal level of margin debt, a form of leveraged borrowing for securities, as of June 2025. While this high level often correlates with increased risk of market peaks or bubbles, it can also signal strong buying interest.
Despite the leverage via margin debt and loans, market sentiment remains cautious. Institutional investors are under-positioned, retail investor exuberance is low, and speculative excess is limited. This environment typically lacks widespread optimism that fuels bubbles.
Inflation expectations are moderate and anchored near the Fed’s target, and credit default rates on loans remain low, supporting market stability.
So, what does this all mean? Although securities loans are not at low levels (in fact, leveraged loan market activity is quite significant), the lack of retail exuberance and institutional caution suggests no immediate artificial bubble. This leaves room for potential further stock price rises underpinned by fundamentals rather than speculation.
Here's a summary of the key points:
- Securities lending via CLOs is active and growing, not low.
- Margin debt is at record highs, indicating high leverage but also strong buying interest.
- Investor sentiment is cautious, with limited speculative excess.
- Inflation and credit quality are supportive of steady growth.
In conclusion, while the current market situation does not necessarily indicate a speculative bubble, borrowed money can significantly influence market prices. An increase in securities loans to a historically "normal" level could lead to strongly rising stock prices. Caution is being exercised by investors due to the possibility of a speculative bubble, but little reason not to buy more stocks despite all-time highs. The development in 2021 serves as a stark reminder of how strongly borrowed money can drive the markets up, and historically "normal" levels of securities loans could potentially lead to market growth.
- In the current market scenario, although securities loans are at a 20-year low, the active use of securities lending and credit leverage, as indicated by the significant growth in the CLO market, suggests that the low levels of securities lending often associated with artificially inflated bubbles are not present.
- Even with record-high nominal levels of margin debt, indicative of high leverage but also strong buying interest, the cautious market sentiment seen among institutional and retail investors, along with moderate inflation expectations and low credit default rates, points towards potential further stock price rises underpinned by fundamentals rather than speculation.
