U.S. margin debt hits new all-time high $1.02 trillion as leverage fuels rally

Margin debt across the U.S. has now hit a record $1.02 trillion in July, after rising by $14.6 billion in just one month, according to data from July released by FINRA.

That jump followed June’s $87 billion explosion, the biggest monthly increase in margin debt ever recorded. In the last two years, borrowing has increased by $400 billion, a 67% gain that’s moving faster than the equity markets themselves.

Adjusted for inflation, margin debt is still slightly below the October 2021 peak, but as a share of GDP, it’s now higher than every other peak in recent history, including the 2000’s Dot-Com era, except for that same 2021 high. The rally that’s been powering stocks is floating on borrowed money.

S&P holds credit rating as deficit outlook stays messy

The U.S. credit rating remains at AA+, not because things are good, but because they’re not expected to get much worse. S&P Global announced the rating reaffirmation last week, pointing to four major supports: the economy’s strength, institutional checks and balances, monetary policy that acts early, and the dollar’s dominance in global reserves.

The outlook remains stable. “This incorporates our view that changes underway in domestic and international policies won’t weigh on the resilience and diversity of the U.S. economy,” said S&P analysts in a statement.

S&P also said that “broad revenue buoyancy, including robust tariff income, will offset any fiscal slippage from tax cuts and spending increases.”

The phrase “fiscal slippage” refers directly to President Donald Trump’s One Big Beautiful Bill Act, which added new tax cuts and reshuffled federal spending, including cuts to some programs and increases to others.

The net effect? Trillions of dollars in additional deficit spending over the coming decade. But S&P is counting on Trump’s tariffs to fill that hole.

The Congressional Budget Office agrees, for now. They estimate that tariff revenues will subtract trillions from the expected deficits. Analysts see between $300 billion to $400 billion a year coming in through levies.

S&P expects the deficit to drop to 6% of GDP between 2025 and 2028, down from 7.5% in 2024, which already improved from the 9.8% average between 2020 and 2023. Still, overall debt levels are expected to rise past the previous all-time highs from World War II.

The same projections show GDP growth accelerating. 1.7% in 2025, 1.6% in 2026, and then a move up to 2.0% in 2027 and 2028. But this growth assumes that the tariff regime stays intact. That’s now being threatened.

Court case could kill tariffs and change fiscal forecasts

Right now, the U.S. Court of Appeals is reviewing a case challenging the legal foundation of Trump’s reciprocal tariffs. The case focuses on whether these duties are allowed under the International Emergency Economic Powers Act.

A decision could come before the end of August, or sometime in September. If the court rules against the administration, those tariffs could be dismantled, gutting the revenue stream that S&P and the CBO are counting on.

A letter from the Justice Department described what would happen if those tariffs vanish. “In such a scenario, people would be forced from their homes, millions of jobs would be eliminated, hardworking Americans would lose their savings, and even Social Security and Medicare could be threatened,” said the DOJ in the filing. The administration is clearly worried about the case going the wrong way.

Fitch Ratings, which also reaffirmed the AA+ credit rating last week, sees a rougher path. Unlike S&P, Fitch doesn’t expect the deficit picture to improve. The firm projects a drop in the deficit to 6.9% of GDP in 2025 from 7.7% in 2024, but it doesn’t last. As new tax cuts from the OBBBA go into effect next year, overall revenue is expected to fall. Fitch sees the deficit rising to 7.8% of GDP in 2026 and 7.9% in 2027, despite strong tariff revenues.

In a statement, Fitch said, “Government revenues will fall, driven by additional tax exemptions on tips and overtime, expanded deductions for state and local taxes (SALT), and additional deductions for people over 65 included in the OBBBA, despite the continued increases in tariff revenues, which Fitch expects to average USD300 billion in both years.”

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