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Based on both of these economic and value indicators, the bear market may just be getting started
There's no sugar coating it: this has been one of the worst starts to a year in stock market history. Since their all-time closing highs, the famous Dow Jones Industrial Average (^DJI), S&P 500 (^GSPC)
Unfortunately, the market's rapid decline may not be over. Despite the fact that the S&P 500 is down 24%, three signs indicate that it has further to go.
Outstanding margin debt is the single most concerning economic indicator for the stock market and investors. The amount of money borrowed with interest by investors to acquire or wager against securities is referred to as "margin debt."
It is absolutely common to see outstanding margin debt rise in lockstep with the total value of all traded securities over time. What is not typical is when margin debt skyrockets in a relatively short period of time. Previously, when margin debt increased by at least 60% in a 12-month period, the S&P 500 fell off a cliff shortly after.
Margin debt increased by roughly 80% between March 1999 and March 2000. This sharp increase in leverage essentially signalled the pinnacle of the dot com bubble, during which the S&P 500 lost approximately half of its value during the longest bad market in the index's history (929 calendar days).
A similar situation unfolded between June 2006 and June 2007, when margin debt increased by 62%. This increase in indebtedness occurred just months before the financial crisis and Great Recession. The S&P 500 eventually lost 57% of its value.
Margin debt increased by 72% between March 2020 and March 2021. If history is any indicator, significant rises in outstanding leverage tend to halve the S&P 500.
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