And even so the Russell 2000 — the
index of small American companies — hit record highs, up close to 20%. That
contrast is the starting point.
The triple-digit club
Over the last twelve months, the number of companies up more than 100% is
more than double the average of the past decade. And they are not
spread out: most belong to the same handful of themes.
| Sector | Role in the rally |
|---|
| Artificial intelligence | The core |
| Memory and semiconductors | The infrastructure holding it up |
| Data centres | Where it gets built |
| Energy | What it takes to power them |
The gains concentrating in a single supply chain is what separates this from a
normal bull market. When a market rises for many different reasons, bad news is
contained. When it rises for one, bad news reaches everything at once.
The indicator saying something else
While prices rise, one number tells a different story:
margin debt — the money investors borrow from their broker to buy
more stock.
Many analysts watch its year-over-year growth rate, using a zone around 40% as
a reference. The logic is simple: when credit for buying stocks grows at that
pace, the rally is no longer being paid for by new savings but by borrowing.
That zone appeared before Black Monday in 1987, before the dot-com bust in
2000, and before several of the more recent episodes of turbulence.
Worth saying honestly: this is a pattern, not a law. There have been periods
of fast margin credit growth with no dramatic ending, and the indicator does not
say when. It tells you how much fuel is stored, not whether someone is
about to strike a match.
The genuinely unsettling part: how declines start
Here is what most people have backwards. Big declines rarely start when
everyone is frightened — that is the end, not the beginning.
They start when leverage stops growing and positions begin to
be liquidated by obligation. Not because someone decides to sell, but because the
broker demands collateral that is not there, and selling stops being a choice.
That moment tends to arrive before the economy officially recognises
the problem, which is why declines seem to come out of nowhere when in fact they
were being announced in a number almost nobody watches.
What to watch
- Year-over-year growth in margin debt, published monthly.
- How many stocks are holding up the index. If it is fewer each month, the
base is narrowing.
- The Fed's tone on how long it keeps rates high.
For now there is no obvious recession and the records keep coming. But one
number keeps growing quietly, and it is the same one that showed up before several
of the market's hardest moments.
Frequently asked questions
What is margin debt and why watch it?
It is the money investors borrow from their broker to buy more stock. When that credit grows at an annual pace near 40%, the rally is no longer being paid for by new savings but by loans. That zone appeared before Black Monday in 1987 and before the dot-com bust in 2000.
How many stocks doubled, and in which sectors?
Over the last twelve months the number of companies up more than 100% is more than double the past decade’s average, and they cluster in a single supply chain: artificial intelligence, memory and semiconductors, data centers and energy.
How do large drawdowns usually begin?
Not when everyone is scared — that is the end, not the beginning — but when leverage stops growing and positions get liquidated by obligation: the broker demands collateral that is not there and selling stops being a decision. The indicator shows how much fuel is stored, not when someone lights a match.
