Margin debt rises and falls in relation to the rise and fall of the stock market. Here is a chart of the year over year change in Margin debt borrowed by customers of NYSE Dealers and the S & P 500 index. 
This next chart compares the amount of Margin Debt compared to the S & P 500 calculated with dividends reinvested. The chart also shows the growth of Short Interest (betting that stock prices will go down instead of up).
CXOadvisory analyzed the relationship and found that there is a very high correlation between margin debt and the S &P 500. However, margin debt lags the S &P 500 slightly. Looking at the charts, margin debt still does provide indication of where we are in the economic cycles. Since 1960, margin debt has grown at a rate of 10% a year. Growth substantially above that has not been sustained. Rapid growth in margin debt is usually quickly followed by contractions. Most recessions have had contractions of margin debt of over 20%.
Short Interest is more sporadic. Sometimes it grows in tandem with the S & P 500. Other times it goes in the opposite direction as seen in this next chart.
Bespoke Investment Group analyzed the stocks that led the surge in stock prices last week. They found that the stocks with high levels of short interest led the rally. The rally was fueled by large amounts of short covering.
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This next chart compares the amount of Margin Debt compared to the S & P 500 calculated with dividends reinvested. The chart also shows the growth of Short Interest (betting that stock prices will go down instead of up).
CXOadvisory analyzed the relationship and found that there is a very high correlation between margin debt and the S &P 500. However, margin debt lags the S &P 500 slightly. Looking at the charts, margin debt still does provide indication of where we are in the economic cycles. Since 1960, margin debt has grown at a rate of 10% a year. Growth substantially above that has not been sustained. Rapid growth in margin debt is usually quickly followed by contractions. Most recessions have had contractions of margin debt of over 20%.Short Interest is more sporadic. Sometimes it grows in tandem with the S & P 500. Other times it goes in the opposite direction as seen in this next chart.
Bespoke Investment Group analyzed the stocks that led the surge in stock prices last week. They found that the stocks with high levels of short interest led the rally. The rally was fueled by large amounts of short covering.
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