
In the U.S., profit margins are at or near historic highs, and stock prices, as measured by the Shiller P/E ratio, are also in the top percentile of their historical range. When both profit margins and market valuations are high, there’s a possibility of a future market correction, as seen in past periods of economic downturn.
Leverage is a major cause of asset bubbles, the latest figures from the Financial Industry Regulatory Authority (FINRA), which show that margin debt in US stocks has crossed the $1 trillion mark for the first time.
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