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Stock Market Warning Signs: Record $423.7 Billion of Debt Is Now Invested in the Market

By Blake Bos - Jan 1, 2014 at 2:33PM

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Massive amounts of debt are invested in the stock market, but should investors care?

The New York Stock Exchange recently updated its stock market margin-debt data, showing that Main Street and Wall Street are continuing to dump billions in borrowed dollars into the stock market. 


Source: NYSE.

Borrowed money in the stock market, known as "margin debt," hit an all-time high of $423.7 billion in November. This puts margin debt, adjusted for inflation, 4.6% below levels seen during the housing bubble and above highs set during the dot-com bubble.

Margin debt is accrued when someone takes out a loan and invests that money into the stock market. Due to historically low interest rates, the appeal of margin debt is much greater today than in previous bull markets. Based on the attractiveness of low-interest debt, it's likely that margin debt could surpass the adjusted highs set during the housing bubble.  

One stock benefiting from the bull market
Tesla Motors (TSLA 4.67%) has been a prime benefactor of the recent bull market, rising 327% year to date, compared to the Dow Jones Industrial Average's (^DJI 1.27%) gain of 23%. This rally stemmed from Tesla Motors' successful launch of its Model S sedan, which showed the company could be profitable and proved naysayers wrong. Extreme rallies like the one benefiting Tesla are common in strong bull markets with large amounts of debt. 

Final takeaway
In the following video, Motley Fool analyst Blake Bos goes over the margin-debt data, gives examples of how margin debt works in the market, and explains how he uses this troublesome data.

 
 

Blake Bos has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,761.05 (1.27%) $424.38
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$900.09 (4.67%) $40.20

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