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• Consumer confidence in the stock market has not reached excessive levels, suggesting there is more time left for the current bull market, Ned Davis Research said in a Wednesday note.
• Consumers' view on bonds is bearish, which is a hopeful sign for the economy going forward, NDR said.
• Despite the bullish signals from tamed sentiment toward stocks, record high margin debt serves as a risk for the market.
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Many sentiment indicators have shown an excessive amount of optimism towards the stock market in recent weeks, but consumer confidence readings tell a different story, according to a Wednesday note from Ned Davis Research. 

US consumers are still skeptical about stocks, according to a survey by the Conference Board. Expectations for a decrease in stock prices over the next 12 months has fallen to a neutral level after being elevated amid the COVID-19 pandemic. The indicator is still far away from reaching excessive levels that would trigger a contrarian sell signal.

This indicator is contrarian in that stocks perform well over the next 12 months when consumers are overwhelmingly bearish on stock prices, and perform poorly when consumer are overwhelmingly bullish on stock prices.

A neutral reading towards stocks for this consumer confidence survey "suggests that the bulls could still have some time" for the rally in stocks to continue, according to NDR. 

Another bullish indicator is US consumers' confidence towards bonds, which has reached a pessimistic level. 

"When people get this negative on bonds historically, a lot of the bad news (good news for nominal economic growth) is starting to get priced in," NDR explained.

But one high-risk warning that should be flashing for stock market investors is record levels of margin debt. While rising margin debt often coincides with rising stock prices, a fast rate of change over the past year has hit a level where stocks have often struggled, NDR warned. 

Ned Davis Research

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