MARKET SNAP: At 6:00 a.m. ET, S&P 500 futures up 0.2%. 10-Year Treasury yield higher at 2.77%. Nymex down 12 cents at $99.62. Gold 0.4% higher at $1283.90. In Europe, FTSE 100 up 0.2%, DAX up 0.3% and CAC 40 up 0.1%. In Asia, Nikkei 225 up 1% and Hang Seng up 0.3%.
WATCH FOR: March ADP Jobs Survey (8:15 a.m. Eastern Time): seen +200K; previously +139K. February Factory Orders (10:00): seen +1.2%; previously -0.7%. Acuity Brands, Monsanto, Texas Industries and UniFirst are among companies scheduled to report quarterly results.
THE BREAKFAST BRIEFING
Investors levering their portfolios up to record levels has historically been a reason to worry. But this time, there is reason not to hit the panic button.
Investors borrowed $465.7 billion against their brokerage accounts in February, the eighth straight monthly increase to an amount that exceeded the previous record of $451.3 billion set a month earlier, according to the New York Stock Exchange. The Big Board’s member brokerage firms report the level of borrowing held against client accounts, known as margin debt, on a monthly basis.
Some say rising margin debt is a sign of increasing confidence in the bull market. The S&P 500 on Tuesday notched its seventh record high of the year. Others see it as a sign of overheated speculation, since investors sometimes plow that borrowed cash back into the stock market. The previous two times that margin debt peaked–2000 and 2007–coincided with major tops in the stock market.
But there are reasons to believe the latest run-up in margin debt shouldn’t cause concern. The amount borrowed has increased at a much slower pace than the previous two times margin debt peaked.
In March 2000, NYSE margin debt rose 78% on a year-over-year basis. In July 2007, it jumped 68% from the prior year. Both times, investors scrambled to take advantage of the surging stock market, only to be burned by sharp subsequent declines shortly thereafter.
In February, margin debt rose just 27% from a year ago, a consistent pace compared to recent months.
The underlying forces driving margin debt higher have changed in recent years, as well. Margin debt is used by both individual investors and professional investors, such as hedge funds. In a report published last month, J.P. Morgan analysts noted the hedge fund part of the equation might be skewing the overall numbers and making the margin debt figures look more speculative than they actually are.
The hedge-fund industry has grown at a rapid clip since margin debt last reached record highs in 2007. So part of the overall rise in margin debt likely comes from the fact that there are more hedge funds doing the borrowing, J.P. Morgan analysts say. Hedge funds typically use leverage, or at least more leverage, than individual investors, but hedge-fund leverage ratios are well below their 2007 peak.
“The growth in margin debt itself isn’t very troubling,” says Jason Goepfert, founder of Sundial Capital Research and author of the SentimenTrader Daily Report.
Peter Boockvar, managing director at the Lindsey Group, notes that margin debt expanded by $21 billion in the first two months of 2014, which coincided with a 0.6% increase in the S&P 500. By comparison, margin debt rose by $36 billion in the first two months of 2013, when the stock index notched a 6.2% gain.
“This data doesn’t tell us where markets go in the very short term, but does say a lot about the leverage that is in the market that has helped to get us here,” Mr. Boockvar said.
Morning MoneyBeat Daily Factoid: On this day in 1917, U.S. President Woodrow Wilson went to Congress to declare war against Germany, a move that catapulted the U.S. into World War I. “The world must be safe for democracy,” he said.
-By Steven Russolillo; follow him on Twitter @srussolillo.
–Alexandra Scaggs contributed to this report.
No comments:
Post a Comment