There is a strong historical relationship between margin debt and the stock market. Given that margin debt just set a record at $1.18 trillion, it’s worth appreciating the mechanics that support this relationship and what it may tell us about how much longer the bull market may run.

When stocks rise, the wealth effect kicks in, making investors feel richer. Accordingly, they become more confident and are more willing to borrow on margin to buy more stocks. Historically, there is a roughly 1 to 3 month lag between rising stock prices and an increase in margin debt. This lag creates a feedback loop: rising prices → higher account equity → more borrowing capacity → more buying → higher prices. Margin debt as a percentage of GDP or relative to market cap tends to peak very close to major market tops. This was true in 2000, 2007, and more recently in 2022.

Conversely, when stocks decline, margin accounts fall below collateral maintenance requirements, triggering margin calls and forced sales. These sales can accelerate the decline, often making corrections more volatile. The quickest stock-market drops in history, including 1929, 1987, and 2020, all coincided with a rapid contraction in margin debt

Rising margin debt can be fuel for bull markets, but it acts as dry kindling when sentiment reverses. Extreme levels of margin debt, as measured relative to market cap or GDP, have preceded every major bear market and severe correction over the last 70 years. As we share below, margin debt as a percentage of total market cap is increasing but remains well below the average over the previous 15 years. Based solely on this measure, margin debt is not a major concern.
 

What To Watch Today

Earnings
 

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Economy
 

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Market Trading Update

Yesterday, we discussed the outlook for Nvidia’s earnings, which are today after the closing bell. The bad news is that the market has been selling down technology stocks ahead of the print, as managers “de-risk” portfolios ahead of the announcement.

The break of the 50-DMA moving average on Monday triggered sell programs across the board, which pushed markets lower yesterday. There is crucial support at the 100-DMA, which also coincides with the bottom of the sell-off in early October. With markets approaching short-term oversold conditions, the 6,550 level should attract some buyers as we head into the Thanksgiving holiday.

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Secondly, with the market oversold, much of the potential downside risk following NVDA’s earnings release has already been priced in. As such, there is likely more upside following the release than previously. There is certainly market risk in play with momentum on a “sell signal,” but I would be cautious reducing too much risk at these levels. More than likely we are going to see a market bounce in the next few days, that will offer a better “exit” point to reduce or rebalance exposures as needed.

Trade accordingly.
 

Buckle Up For Nvidia Earnings

NVIDIA (NVDA) is set to report its third-quarter earnings after market close today. Analysts expect a strong beat, with a consensus revenue of $54.6 billion. The consensus represents a 56% increase from the $30 billion it made in its prior third quarter. Expectations of adjusted EPS are $1.23, a 52% increase versus the same quarter last year. The lofty estimates are driven primarily by explosive growth in the Data Center segment, AI demand, and the ramp-up of its new Blackwell GPUs. For context, in NVIDIA’s Q2 report, revenue hit $46.7 billion (56% YoY growth) and EPS was $1.05. Outside of earnings and revenues, the key areas to focus on in today’s announcement are as follows:

• Blackwell chip production scaling (potentially $8-12 billion in Q3 contributions),
• Gross margins (73.5% non-GAAP)
• Updates on the $500 billion AI chip order backlog spanning 2025-2026. CEO Jensen Huang highlighted this area as the ability to add upside to its 2026 revenue forecasts.

The earnings report carries high stakes for Nvidia shares and the broader market, amid the recent tech sell-off and AI bubble concerns. Nvidia is now the largest stock in the S&P 500, representing about 8% of the index. The options market implies a +/- 7.5% change in the stock price following the earnings release. Historically, NVDA has beaten estimates in 90% of the last 20 quarters. However, more recent earnings beats have been tempered compared to prior ones. Thus, market reactions have generally been muted on beats.
 

Home Depot Earnings Portend Consumer Weakness

Home Depot reported underwhelming sales and earnings for the third quarter. They missed expectations for adjusted earnings per share, reporting $3.74, $0.10 below estimates, and net earnings of $3.6 billion, down 1.3% from the prior year. Revenue reached $41.4 billion, which was boosted by approximately $900 million from the acquisition of GMS Inc. However, sales excluding GMS were weak. Comparable same-store sales, a key retail sales metric, increased only 0.2% globally and 0.1% in the U.S.

The stock opened down nearly 5% on Tuesday morning. In addition to the weak earnings, the company lowered its full-year profit guidance, citing weaker-than-expected demand and a pullback in discretionary home improvement purchases. Management attributed the subdued results and poor outlook to cautious consumer spending. Per its CEO, Ted Decker:

Consumers remain cautious, and we are seeing a continued pullback in discretionary home improvement spending.

We are navigating a challenging environment where consumers are more selective and value-conscious in their spending decisions

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