Over the past week, every time the U.S. and Iran have announced a peace deal, the market has responded with a 20-point bump.
Altogether, the U.S. stock market is now enjoying one of the longest-lasting market rallies in its history, the S&P 500 Index finishing higher in each of the past eight weeks.
With a market run of this breadth and magnitude, egged on by technology, margin debt is also rising, now at a record $1.3 trillion. Speculators are saying in unison, “Screw ‘buy the dip’, let’s just ‘ride the bull’”:
Margin debt has soared, driving strong growth for brokerage firms as markets rally. (Source: Economic Visuals)
Margin debt has soared by more than 40% from its 2021 peak before the 2022 bear market.
Investors better hope that the rally continues – they’re putting record new debt on the line for just that outcome.
The good news for speculators? History suggests that markets can trend higher even from here. Prior strong multi-week rallies have historically led to higher markets a year later.
In midterm election years, the summer months tend to be weak. But given the current desire for a genuine peace deal, a repeat of last summer’s market melt-up is likely.
Time will tell, of course. For now, it’s a “risk-on, baby!”
Those supplying margin for today’s investors are minting money off of today’s high-flying investor sentiment.
If you are trading, remember: you can’t tell when a market cycle’s margin has peaked until after the next bear market hits. Good luck.
Long-term investors can stay in today’s markets – but we recommend taking this opportunity to do the opposite of the crowd: deleverage and avoid any margin following the market’s monster eight-week rally. For the short term, buy financials.
Of course, not all financials are created equal. Banks are lagging. Credit-card companies are reporting rising delinquencies amid consumer weakness. To learn about the niche of the financial market set to benefit from today’s stock-trading frenzy, become a member of Grey Swan Pro — details here.
~ Addison
P.S. While market margins soar, some stocks are off to the moon – notably space stocks ahead of the hotly anticipated initial public offering (IPO) for SpaceX.
The setup in the stock market gives us an opportunity to stress the distinction between “investing” and “trading.” The Grey Swan Model Portfolio is primarily composed of stocks that are enjoying bull-market gains and paying high dividends, a perfect mix for long-term investors.
Over at the Grey Swan Trading Fraternity, our own Andrew Packer just issued an alert to close a trade in a space-related stock that’s been soaring in recent weeks. Total gains as of Friday’s close were over 130% – with a final return of over 200% following this morning’s market surge.
The SpaceX IPO, valued at nearly $2 trillion, will be a lot for the market to digest – and could lead to a vacuum sucking up capital from other stocks. This may be yet another case of the old adage of buying the rumor – in this case, all the details of the SpaceX IPO – and selling the news when it does happen.
As always, if you have any questions for us, send them to Feedback@GreySwanFraternity.com.
