Ned Davis Research has raised concerns about the high levels of household equity allocations, indicating a potential warning sign for the stock market. Alongside this, other indicators such as low mutual fund cash and heightened CEO confidence also point towards a potential market peak.

The research firm emphasized that excessive optimism raises questions about the remaining liquidity available for investments. American households are significantly increasing their stock holdings, but this record-high level of investments may not bode well for the market.

Ned Davis Research noted that various signals suggest that market optimism is at levels typically associated with stock price peaks. According to senior advisor Ned Davis, the peak of the market represents the peak of investor optimism when they are fully invested.

Key indicators of peak market optimism include households having the highest percentage of financial assets in stocks since 1951, record-low levels of cash held by mutual funds, near-record stock allocations by institutions, near-record foreign investor stock holdings, and record CEO confidence during President Trump's inauguration.

Davis also pointed out that valuations based on metrics such as dividend yields, cash flow, and real earnings are at or near extreme levels, indicating signals commonly observed at stock market peaks.

Despite potential short-term market rebounds, as short-term sentiment has been significantly negative amid this year's market decline, the S&P 500 correction serves as a cautionary sign of potential future difficulties, as per Ned Davis Research.