Leverage Data Sounds the Alarm
Global equity markets have climbed to fresh record highs, propelled by investor enthusiasm for artificial intelligence. Yet beneath the surface, the scale of leverage has reached eye-popping levels. According to recent data, US margin debt — money borrowed from brokers to buy stocks — surged to $1.4 trillion in May, marking an all-time high. At the same time, the total assets under management in leveraged ETFs have surpassed $220 billion, reflecting aggressive bets on the AI rally.
But the visible leverage is only part of the story. Market participants point to multiple layers of hidden leverage — such as total return swaps, options-based strategies, and structured notes — that inflate the true risk exposure. These off-balance-sheet positions are difficult to track and could amplify any downturn. If the AI theme falters or if the Fed tightens liquidity, highly leveraged positions would face margin calls, forcing rapid deleveraging that could hammer stock prices. Investors should watch margin debt and ETF leverage closely as warning signs of systemic risk building in the current bull market.