Stock market borrowing slows as warning signs accumulate

Investors are borrowing less money to buy stocks, a shift that Bank of America says has historically preceded market downturns.

Data from the Financial Industry Regulatory Authority shows annual growth in margin debt fell to 31.4% in September. That figure is down from 53.7% in May. Paul Ciana, a technical strategist at Bank of America, noted in a Friday report that this deceleration from extreme levels often signals a market top.

The May 2026 growth rate was the fourth highest recorded since 1998. The three higher spikes occurred in 2000, 2007, and 2021. Each of those years was followed by a stock market decline. Earlier in 2026, borrowing increased at a faster pace than stock prices, a dynamic analysts view as a contrarian indicator similar to sentiment gauges.

Total margin debt stood at $1.48 trillion in September. This amount is 1.5% lower than the record $1.5 trillion reached in June. High leverage can accelerate declines because falling prices trigger margin calls, which force investors to sell assets.

Individual investors have felt the pain of such moves. Hy Luu, a Tesla investor, refinanced his home in 2022 to raise $30,000. He used the funds to pay down margin debt during that year’s stock decline.

Bank of America’s equity derivatives team identified other warning signs in a Tuesday note. These include widening high-yield credit spreads and a rotation into defensive sectors like healthcare and consumer staples. The team said this rotation has pushed those sectors to bubble-risk levels, a shift they compared to the late 1990s and the post-pandemic rally.

Ciana offered a counterpoint regarding the upcoming midterm elections. He noted that risk assets like the S&P 500 typically rebound after midterms unless severe downside risks appear.