Record levels of leverage meet record levels of stock concentration. Points to consider.

ANTHONY SAGLIMBENE – CHIEF MARKET STRATEGIST, AMERIPRISE FINANCIAL

WEEKLY MARKET PERSPECTIVES —  July 27, 2026

Record levels of leverage meet record levels of stock concentration. Points to consider.

In past commentaries, we’ve made brief reference to the leverage that appears to be building across U.S. equity markets at present. But the June FINRA data below, for example, is making the dynamic more difficult not to address outright. Customer margin debt reached $1.5 trillion, up +49% year-over-year, with $494 billion added just over the last twelve months.

The current reading places margin debt in an unusual historical group. According to FINRA data, only three periods since 1997 have experienced sustained year-over-year growth exceeding 40%: late 1999–2000, mid-2007, and 2021. Each of these periods was eventually followed by a margin debt drawdown of at least 35% and an equity market correction. In late March, CGS International pointed out that the ratio of margin debt to the M2 money supply had reached levels comparable to those in 2008 and was approaching the dot-com peak. Today, that level has been surpassed.

Importantly, FINRA data captures only debit balances at regulated broker-dealers. Less transparent channels of leverage sit outside its lens. In our view, two other forms of leverage use today are worth calling out. Leveraged ETF assets peaked at roughly $207 billion at the end of June before falling to about $168 billion by mid-July, per Bloomberg. And daily rebalancing flows from these products reached a record $50 billion per session at the peak, roughly quadruple the pace at the start of the year. We believe flows in these types of products are adding a structural driver of intraday volatility. For context, nearly 900 leveraged products now trade in the U.S., according to Morningstar. More than 400 of them are tied to single stock ETFs.

And leverage isn’t just a retail story. According to Goldman Sachs, hedge funds increased their net tilt toward Information Technology by 853 basis points during the first quarter, the largest quarterly increase on record, while reducing exposure across most other sectors. More recently, Goldman reported that hedge funds have been net sellers of U.S. technology stocks in six of the last eight weeks. In our view, these shifts highlight how concentrated market exposure to the AI theme has become. When large amounts of capital, leveraged or otherwise, are directed toward the same handful of companies, repositioning activity can amplify market moves well beyond what changing fundamentals alone might justify.

When AI-linked equities and semiconductors sold off earlier this month, forced selling from leveraged products drove the KOSPI sharply lower, triggering circuit breakers nearly daily, a frequency last seen in 2008. Individual leveraged products were so severely dislocated that some fell by double-digit percentages on days when the underlying security rose. And when Korean brokers recently signaled that the margin unwind was nearing exhaustion, the same mechanics amplified the rebound in reverse.

Here at home, the top ten stocks now account for over 37% of the S&P 500 by market capitalization, well above levels seen during the dot-com peak. The Information Technology sector alone represents nearly 38% of the Index, an all-time high for a single sector, while Communication Services (home to Alphabet and Meta Platforms) adds an additional 12%. Notably, the Mag Seven (often a key barometer of Big Tech) as a group has gone nowhere year to date, both in absolute terms and relative to hundreds of other S&P 500 stocks. Thus, AI leadership has broadened this year, but concentration risk and leverage across the Index has not.

Leverage stacked on top of a concentrated market environment can create unique vulnerabilities that we believe investors should at least be cognizant of as we move through the second half. For example, a 5% move up or down in a mega-cap tech stock is going to move the Index far more than a 10-15% move in a smaller-sized stock, even if that stock is among the top 100 largest S&P 500 companies. And when leveraged participants all hold the same names, a factor that is growing, stress up or down can produce larger market swings that may seem out of step with headline developments. So, given that we stand in a highly concentrated, increasingly leveraged market environment today, what can investors do to navigate these dynamics?

First, consider using margin in brokerage accounts sparingly, in concert with your financial advisor's guidance. In our view, most investors should avoid leveraged products in personal portfolios. Such leveraged ETFs are designed for daily trading, not for holding in an account for more than one day. Compounding decay can erode returns quickly, even when a directional view proves correct.

Second, investors should recognize that large price moves in concentrated names may reflect more than just changing fundamentals. When large mechanical rebalancing, due to, say, leveraged ETFs, hits the same handful of stocks every day, intraday trading action may reflect leverage dynamics as much, if not more, than the market’s reaction to specific company developments.

Third, maintain diversification even when owning highly concentrated indexes or themes is winning, and when areas such as non-tech cyclicals or defensives are lagging. Current levels of market leverage may amplify this contrast over the intermediate term, and should the AI theme continue to lead markets higher. That said, while professional money managers take on the risk of underperformance for diversification in highly concentrated markets and when benchmarked to the S&P 500, for example, individual investors should worry much less about this risk. We believe broader portfolio exposure beyond the top 10 S&P 500 stocks is the cleanest hedge against the leverage/concentration risk that has built in today’s market environment. As we have mentioned in previous commentaries, rebalancing to strategic or tactical target weights on a set schedule (e.g., based on time or target weights) can also help remove emotion from the decision.

Bottom line: We believe leverage is becoming a growing risk factor in U.S. equity markets. The combination of record index concentration and record leverage is historically unusual and could be self-reinforcing in both directions. On the way up, leverage in concentrated names can drive performance, attracting more capital and more leverage into those same names. On the way down, forced selling in the most concentrated names hits the Index hardest, triggering more margin calls and more forced selling. The loop runs in both directions, and the mechanics don’t always properly reflect the degree of change in fundamental catalysts. Importantly, we believe investing with intention and discipline during these periods can actually create opportunities for investors with a long enough time horizon.

All this said, we believe the fundamental case for AI-driven earnings growth remains durable and visible, including from some of the most highly concentrated, most leveraged names in the S&P 500 today. However, it is growing more critical to understand concentration levels across major indexes and the leverage to the AI theme now pulsing through the market. Thus, we believe investors should take an eyes-wide-open approach to their portfolio. This includes seeking to fully understand what one owns, and why, and working with an advisor on proactive strategies and tactics to help guard against or take advantage of potentially larger market dislocations that may develop should leverage and concentration risks grow.

The week ahead:

• The July FOMC decision on Wednesday is the main event, with markets pricing a roughly 35% chance of a rate hike.
• 35% of the S&P 500 reports earnings results this week, with Mag Seven dominating the calendar. Meta Platforms and Microsoft report on Wednesday, and Amazon and Apple on Thursday.

Q2 GDP, June PCE, and a broad slate of industrial, consumer, and financial reporters round out a very busy week.

These figures are shown for illustrative purposes only and are not guaranteed. They do not reflect taxes or investment/product fees or expenses, which would reduce the figures shown here. An index is a statistical composite that is not managed. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.