Here is a daily chart of the US 10 year treasury note yield. It is sending a very important message.
During the past several months the 10 year note yield has been at historically low levels, even lower than during the Great Depression. Contrary to popular belief, low yields reflect very weak economic conditions and a monetary policy that has been too tight to allow growth of nominal GDP at historically average levels of 5% per year. US nominal GDP growth has averaged about 2% during the past three years. The Fed has not been doing its job, largely for political reasons.
However you can see on the chart that the 10 year yield last week staged a breakout from a narrow five month trading range. It has even taken a peek above its declining 200 day moving average. I think this is the start of a rally in yield which will take the market back to its 2011 high yield at 3.75% (green dash line).
This means that the market is now expecting higher levels of nominal GDP growth going forward than we have seen during the past 3 years. If the Fed keeps the funds rate as low as it has promised over the next couple of years, higher levels of GDP growth will force the Fed to provide more and more liquidity to the market to keep short rates low. This will not only accommodate high growth rates but will raise them.
So I think the market is telling us that a strong, sustained recovery in the US economy lies ahead, a recovery that is likely to lower the unemployment rate dramatically over the next three years. If the treasury note market is reading the tea leaves correctly much high stock prices lie ahead.