At the margin, investors are far from “irrationally exuberant”


The S&P 500 is at an all-time high and three firms are now in the one trillion-dollar club. Surely this is an indication of the ultimate peak in investor euphoria? The same level of “irrational exuberance” witnessed at the height of the tech bubble and pre-crisis? Margin debt suggests not.

When investors are irrationally exuberant, there tends to be a desire to take on more risk and trade on margin. However, this isn’t the case now. The level of margin debt, which typically equates to a greater risk exposure for investors, decreased in the second half of 2018 and has tracked side-ways through 2019.  Investors are not mindlessly chasing the rise in US equities, despite headlines that would suggest the contrary.

This lack of exuberance, or euphoria, suggests there is still plenty of upside for US equities.