Americans have borrowed more money to buy stocks than at any time in history, and figures released during the week of June 24 show how far the trend has run. The Financial Industry Regulatory Authority (FINRA), the watchdog that tracks how much investors owe their brokers, reported that margin debt — money people borrow against stocks they already own so they can buy still more — reached a record $1.42 trillion in May, an 8.5% jump in a single month and a 53.7% increase from a year earlier.

Buried in the same report was another record. After subtracting the cash sitting in brokerage accounts, investors are now collectively in the red by $991.7 billion, the largest deficit ever recorded. The gap between what investors own outright and what they owe has never been wider. Measured against the size of the U.S. economy, margin debt now stands at nearly 4% of gross domestic product, compared with a long-run average closer to 1.5%.

Margin investing is simple, and that simplicity is what makes it risky. Borrowing allows investors to buy more stock than they could with their own cash alone, magnifying profits when markets rise. But it also magnifies losses when markets fall. If the value of an account drops below required levels, brokers issue margin calls demanding more cash or securities. If the investor cannot meet the call, the broker can sell shares automatically, often during periods of market stress. Those forced sales can push prices even lower, triggering additional margin calls in a chain reaction that accelerates declines.

The borrowing is not coming only from individual investors. By the start of the year, investors had poured another $250 billion into leveraged exchange-traded funds, investment products designed to deliver two or three times the daily movement of major indexes. Hedge funds have become even more aggressive. Industry data show borrowing by hedge funds has climbed to the highest level since records began in 2013, supporting market positions worth roughly eight times the amount of cash they have invested. Banks have also extended approximately $2.5 trillion in financing to nonbank financial firms that rely heavily on leverage.

On June 15, strategists at Morgan Stanley warned that investors using borrowed money may be approaching their limits. The firm said borrowing costs have risen sharply while primary dealers are carrying a record $223 billion in stock positions financed through borrowing. Morgan Stanley’s measure of market dependence on leverage has climbed nearly 50% over the past year. As borrowing becomes more expensive, highly leveraged investors may have little choice but to reduce positions if markets weaken.

What makes the current environment especially unusual is where much of the borrowed money has gone. During the past three months, only one of the 11 sectors in the S&P 500 — technology — has consistently outperformed the broader market, with semiconductor companies accounting for roughly half of that sector’s weighting. The artificial intelligence chip boom has become the market’s dominant investment theme. The Roundhill Memory ETF reached $10 billion in assets in just 43 days, the fastest growth ever recorded for an exchange-traded fund, with roughly 75% of its assets concentrated in Micron Technology, SK Hynix, and Samsung Electronics. Meanwhile, the iShares Semiconductor ETF has gained roughly 108% this year, compared with about 10% for the S&P 500, while its ten largest holdings account for more than 62% of the fund.

History offers several warnings. Margin debt reached previous peaks in March 2000, shortly before the dot-com bubble burst, and again in July 2007, just months before the global financial crisis accelerated. Heavy borrowing also fueled speculation before the stock market crash of 1929. In each case, leverage amplified both the rally and the subsequent decline.

Today’s market carries similar characteristics, with an added concentration risk. Because so much borrowed money is concentrated in technology and semiconductor stocks, a significant decline in only a handful of companies could trigger forced selling well beyond those firms themselves. The Federal Reserve, in its November 2025 Financial Stability Report, identified elevated leverage as an area warranting close attention.

None of this guarantees a market downturn. Borrowed money can continue supporting rising stock prices for extended periods, and analysts caution that margin debt alone has never been a reliable timing signal for market tops. What record leverage does mean, however, is that the market has less room for error. When record amounts of borrowed money are concentrated in one corner of the market, even a relatively small shock has the potential to spread much farther than investors expect.

JBizNews Desk | New York
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