With leverage in finance at multi-year highs, the MSCI World Index’s 1.5% weekly gain is partly fueled by funds rotating into high-beta cyclical sectors. Market models suggest a potential pullback if rate hikes tighten credit conditions faster than anticipated. Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Canadian exchanges. At the end of 2024, the ratio of broker-dealers' assets to equity was at the lower end of its historical distribution ( figure 3.7 ). Smoothing through seasonal factors, profits were up year over year ( figure 3.8 ). The breakdown of broker-dealer profits remained relatively balanced, with earnings evenly distributed across equity; fixed income, rates, and credit; and other business lines ( figure 3.9 ). Bank of America’s latest data indicates leveraged ETFs saw $1.1 billion in inflows last week, mainly targeting energy stocks. Investors are betting on supply constraints to push crude higher, though leverage in finance magnifies exposure to downside shocks if demand weakens.