Margin Debt At An Extreme

Today's minor U.S. Federal Reserve rate hike is of no real consequence. 

Contrary to popular belief, the Fed doesn't even actually set rates it merely follows rising or falling rates as set by the bond and treasury markets. 

Typical action will be a rally lasting a short while, usually a day or two although with light trading in this traditionally bullish season it could last longer, then a major reversal. 

As of today, despite the DJIA being up a massive 601 points since the low hit just two days ago on Monday morning, the DJIA is not even in the black for the year so far.  That's not bullish.

Also not bullish, in fact arguably quite bearish, is the level of margin debt. 

The above chart is months old, from early 2015, and since then margin debt has turned lower, as have stocks.  The DJIA's high (18351) was in May, and that high was only slightly higher than the high hit in early March (18288). 

It doesn't matter whether margin debt turns lower before or after equities, it only matters that margin debt remains in the red zone and now interest rates are rising, however slightly, with the promise of more rate hikes to come, economic indicators globally are in decay, and most importantly the bond market is on very shaky ground which also will not be helped by rising rates.

 






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