New York Stock Exchange (NYSE) margin debt made another all-time high in February at $528 billion. Many say this is a contrarian indicator, as it shows investors are potentially over-leveraged. So is record margin debt really a warning sign for equities? For starters, it appears to be more of a coincident indicator than a leading indicator, as margin debt made an all-time high in April 2013 and it has moved higher with the S&P 500 the past four years. In fact, the S&P 500 has gained approximately 70% since margin debt started making new highs. (LPL Research)
The S&P 500 is likely to produce double-digit year-over-year earnings growth for the first quarter as earnings season gets underway this week. Consensus is for +10.1% earnings growth. That would be the best since 2011. Growth is expected to be powered by energy's rebound from the oil downturn that battered the sector early last year while solid macro data in recent months is also supportive. (LPL Research)
The New York Stock Exchange (NYSE) Composite Advance/Decline (A/D) line broke out to new highs last week. This shows how many stocks are advancing versus declining at any given time. In other words, it measures overall market breadth. To see new highs occur suggests there is a good deal of investor participation and the overall equity rally could continue to have legs. (LPL Research)
With Northwest Quadrant Wealth Management, a Registered Investment Advisor I am Troy Reinhart.