The Margin Effect and Stocks By Telis Demos

This is Heard on the Street writer Telis Demos, filling in for Spencer Jakab this week. U.S. stock-index futures are trading down slightly after Friday's rally. JDE Peet's shares surged around 17% in Amsterdam trading on news the coffee brand owner would be acquired by Keurig Dr Pepper for $18 billion. Shares of the acquirer were down 3% in premarket trading.

***

Margin borrowing may not be a great predictor of the S&P 500's next move. But it can still tell us something useful about how to invest.

Borrowing that happens in brokerage accounts, often used to buy more stocks, was at an all-time high as of July, and topped $1 trillion for the first time ever as of June, according to tracking by Finra, which collects data from brokerages.

The tempting inference is that more borrowing by investors means they are getting overly bullish. And that any correction will be magnified as investors are forced to roll back their borrowing. (Some especially quick rises in margin debt have preceded corrections, as my colleague Spencer Jakab recently pointed out in this newsletter.)

But there is a lesser-known driver of the growing size of margin debt: the rise of the market itself.

Investors who have borrowed shares to short-sell them need to post collateral to their lenders. As share prices rise, they need to post more. That cash can be automatically drawn from a margin loan.

So when stock prices rise, margin debt can become mechanically bigger. When that is the case, margin is no more useful than the S&P 500 point total in predicting the next move.

However, there is one thing the rising level of margin debt does tell us: It is a great time to be in the brokerage business.

Margin loan books grew well over 15% at both Charles Schwab and Interactive Brokers in the second quarter versus a year earlier, for example. On top of fees generated by trading volume, this helps fuel growth in net interest income, even with interest rates falling from a year ago. Robinhood Markets' margin book grew 90% in the second quarter from a year earlier, as the firm unveiled new pricing last year to attract more sophisticated individual traders.

Even if it isn't a "market top" signal, though, margin levels still matter to some stocks. Shares of brokerages and Wall Street trading firms have been essentially supercharged bets on the rising market. Robinhood is up over 400% over the past year. Interactive Brokers is up over 100% and Schwab is up around 45%. Morgan Stanley and Goldman Sachs are up about 40%. The S&P 500 is up 13%.

But this can be a double-edged sword. If prices plunge, so can margin lending. Investors roll back borrowing to slash risk. And as collateral needs shrink, rather than grow, margin debits can become credits, and interest income falls. So, too, can fees based on the value of assets or portfolios. This means revenues can drop on the downswing just as they rose on the upswing. Brokers' shares may fall faster on the downside, too.

So while margin debt won't tell you when the market will go down, it may tell you who could one day pay a stiff price.

Stocks I'm Watching

Orsted : Shares in the offshore-wind company fell 18% after President Trump issued a stop-work order for the company's Revolution Wind project off the coast of Rhode Island.

PDD : Earnings from Temu's parent company will shed light on how the Chinese bargain-shopping company is dealing with U.S. tariffs. Shares ticked higher premarket.

Comcast ; Walt Disney : President Trump said in a social-media post overnight that Disney-owned ABC and Comcast-owned NBC should have their licenses revoked for unfair coverage of conservatives.

Heico : The aerospace company is due to report its results after markets close on a quiet day for U.S. corporate earnings.

Intel : Shares climbed 3% premarket, continuing their climb after terms of the U.S. government's equity investment in the chip company were revealed Friday.

Markets at a Glance

Data refreshes every time you open this email.

Follow our live markets coverage , updated throughout the day.

One Big Chart

Stagnant Job Market Is a Rising Risk for the U.S. Economy

The good news is that unemployment remains low, and employers haven't been all that interested in laying people off. The bad news is that companies haven't been all that interested in hiring, either. This precarious situation means even a relatively small increase in layoffs could lead the economy to start shedding jobs-a process that can be difficult to reverse once it starts.

What I'm Reading How a Historic Immigration Drop Is Changing the Job Market. ( WSJ ) Tech Rally Shows Signs of Losing Steam ( WSJ ) Inside Intel's Tricky Dance With Trump ( WSJ ) Will Washington's Debt Addiction Spark the Next Global Crisis? ( Foreign Affairs ) This Day in Markets History

On this day in 1987, the Dow Jones Industrial Average hit 2722.42, a new record high-up 44% for the year and triple its level just five years earlier. "In a market like this, every story is a positive one," said Jon Groveman, head equity trader at Ladenburg, Thalmann & Co. Less than two months later, on October 19, the Dow lost 23% in a single day.

Beyond the Newsroom

WSJ | Buy Side: Our guide to understanding the latest trends in student loan interest rates.

About Me

Telis Demos is a writer for Heard on the Street, The Wall Street Journal's home for financial analysis and commentary.

The Markets A.M. newsletter prepares you for the trading day ahead, with insight into the companies and industries set to move markets. Send your feedback to [markets.am@wsj.com], or reply to this email.

Enjoying this newsletter? Get more from WSJ and support our journalism by subscribing today with this special offer .

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

August 25, 2025 06:26 ET (10:26 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.