I find it interesting that we have such a wide variance between the stock and bond markets regarding expectations of the economy. The stock market sees a recovery. Even bad news is spun to be less bad. The bond market clearly sees economic hardships ahead, possibly even deflation. Look at the yields on Treasuries.
Short term Treasury yields haven’t moved from the recessionary lows, but the five and ten year bonds are back in recessionary ranges. The thirty year hasn’t moved down as much in yields, but that could change quickly if shorter maturities continue their downward trend as investors reach for yield (or if deflation does, in fact, ensue).
The stock market sees these low yields and argues that an upward sloping curve is bullish for the economy. Also, arguments exist that investing in dividend paying stocks is better than investing in poor yielding bonds. This is true unless we see an economic slowdown or deflation. In either case, equities will lose value.
If I were a betting man, I would bet on the bond market winning. It is three times larger than the stock market, but it will be interesting to see which market proves correct.