Margin debt used to buy stocks has plunged by $329 billion

One measure of stock market speculation among investors has plunged to levels not seen since the low of the dot-com bubble burst in 2002, according to a Friday note fromFINRA margin debt, which measures the amount of loans taken on by investors to buy stocks, has plunged by $329 billion since the October 2021 peak.

On a percentage basis, today's 35% decline in margin debt from the peak does not exceed the more than 50% declines seen in 2008 and 2001, but as a percentage of total market cap, it does.The extreme de-leveraging isn't a surprise to Lee given thatover the past 15 months, which is a sign that investors remain risk-averse following the steep decline they experienced in stocks.

And it's that de-levering by investors that could set the stock market up for a continued rally if a soft landing in the economy materializes, Lee said, as investors will have plenty of fire power between cash on the sidelines and the ability to increase their margin loans to buy stocks.

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