Margin Accounts at Brokers and Dealers

A not well-known metric that gives some insight into the health of the equity market is the margin accounts at broker and dealers. These are loans made by brokers and dealers to households to meet margin calls, which happen when a customer’s account value declines below some required level set by the broker or dealer. Generally speaking, in times of exuberance, loans are more easily extended; and in times of panic, loans contract. That is what you see when looking at the chart below showing the trend for the last 20 years. At the moment, exuberance is evident and so loans have been increasing. This chart, which is indexed to March 2001 as the base (i.e. = 100) gives further support as to why the stock market has made strong moves upward.

But a word of caution is warranted: This is a quarterly metric, so the lag is quite pronounced given that the last data point is as of 3Q2020. I am looking forward to see what the next data release next month will show. My expectation is an increasing value, given the general low interest environment.