US Equity Market Leverage Analysis

Current Risk Assessment & 6-Month Projection

Data as of September 2025 (Latest FINRA) | Dashboard Updated: October 29, 2025

OVERALL RISK: HIGH

Market leverage at historically elevated levels

⚠️

📊 Composite Leverage Score

CURRENT SCORE (Sept 2025)

87/100

EXTREME RISK

Score >80 = Extreme Risk

Score 60-80 = High Risk

Score 40-60 = Medium Risk

Score <40 = Low Risk

Historical Leverage Scores at Key Market Inflection Points

Now (Sept 2025) S&P 500: ~6,700
87
Extreme Risk
Oct 2021 Peak S&P 500: 4,704
84
Market fell 25%
Oct 2007 Peak S&P 500: 1,565
79
Market fell 57%
Mar 2000 Peak S&P 500: 1,527
92
Market fell 49%
Oct 2022 Bottom S&P 500: 3,577
32
Market rallied 87%
Mar 2020 Bottom S&P 500: 2,237
28
Market rallied 110%
Mar 2009 Bottom S&P 500: 677
23
Market rallied 400%+
Oct 2002 Bottom S&P 500: 777
26
Market rallied 101%
💡 Score Methodology

The Composite Leverage Score (0-100) weighs: Margin Debt (25%), Corporate D/E (15%), Hedge Fund Leverage (15%), Valuation Metrics (20%), Net Credit Balance (15%), and Market Sentiment (10%). Higher scores indicate extreme leverage and elevated crash risk.

Margin Debt

HIGH RISK
$1.13T
September 2025 (FINRA)
vs. August 2025: +6.3% ↑
vs. Sept 2024: +38.5% ↑
Consecutive rises: 5 months 🔥
Status: All-time high

Historical context: Previous peaks preceded major corrections in 2000, 2007, 2021

Corporate Debt/Equity

MEDIUM RISK
89.5%
Q1 2025 (Federal Reserve)
5-year average: ~85%
Record high (2011): 110.1%
Trend: Elevated but stable

Below 2011 peak but above historical averages. Companies maintain strong profit margins.

Hedge Fund Leverage

HIGH RISK
Record
Q3 2024 (SEC Form PF)
Status: Historical highs
Concentration: Largest funds
Recent activity: Partial unwind

Fed reports hedge fund deleveraging may have contributed to recent market volatility

S&P 500 Valuation Metrics

Forward P/E Ratio 22.7
10-year avg: 18.6 | 5-year avg: 19.9 | +21% above 10Y avg
Trailing P/E Ratio 30.9
Historical median: 17.98 | 72% above median
Net Profit Margin 12.8%
5-year avg: 12.1% | Above average
Market Cap / GDP Record
Never been more expensive (BofA Analysis)

Market Sentiment Indicators

Net Credit Balance -$728B
September 2025 | Lowest ever recorded
Bear Market Signposts 60%
6 of 10 triggered | Historical peaks: ~70% | Worryingly close
Household Equity Allocation 52%
Record high | Doubled since 2008 | Exceeds dot-com bubble
AI Bubble Sentiment 54%
% of investors believing AI in bubble (BofA Survey)

Historical Margin Debt vs S&P 500

Note: Steep increases in margin debt have historically preceded major market corrections within 0-6 months

6-Month Projection (Nov 2025 - Apr 2026)

Bull Case

📈

Probability: 20%

Margin Debt: $1.15-1.20T (+2-6%)

S&P 500: +10-15%

AI productivity gains materialize, Fed cuts rates aggressively, earnings exceed expectations

Base Case

📊

Probability: 40%

Margin Debt: $1.05-1.10T (-3 to -7%)

S&P 500: -5 to +5%

Choppy market, gradual deleveraging, rotation from growth to value, sideways movement

Bear Case

📉

Probability: 40%

Margin Debt: $850-950B (-15 to -25%)

S&P 500: -15 to -30%

Forced deleveraging, margin calls cascade, AI bubble bursts, recession concerns intensify

Key Factors to Monitor

• Fed Policy: Any hawkish pivot or delayed rate cuts would pressure leveraged positions
• AI Earnings: Tech giants must justify valuations with strong Q4 2025 / Q1 2026 results
• Credit Markets: Watch for stress in private credit and non-bank lending
• Hedge Fund Activity: Further deleveraging could amplify volatility
• Margin Debt Trend: If rises above $1.15T, risk increases significantly
• Geopolitical: Trade tensions, govt shutdowns could trigger risk-off

Risk Level Breakdown by Indicator

⚡ Action Items for Investors

Risk Management

  • ✓ Review portfolio leverage - reduce if using margin
  • ✓ Consider increasing cash allocation (10-20%)
  • ✓ Set stop losses on highly leveraged positions
  • ✓ Avoid chasing momentum in AI/tech sectors

Opportunities

  • ✓ Look for value opportunities in unloved sectors
  • ✓ Consider defensive sectors (utilities, consumer staples)
  • ✓ Build watchlist for quality names at better prices
  • ✓ Dollar-cost averaging for long-term positions

📅 Data Freshness Status

✓ Margin Debt: Sept 2025 (Latest FINRA)

✓ Corporate D/E: Q1 2025 (Federal Reserve)

✓ Hedge Funds: Q3 2024 (SEC Form PF)

✓ Valuations: Oct 2025 (FactSet)

✓ Market Data: Real-time S&P 500

✓ Sentiment: Oct 2025 (BofA Survey)

Data Sources: FINRA, Federal Reserve, SEC, FactSet, BofA Global Research

This analysis is for informational purposes only and does not constitute investment advice.