Who is right, stock or bond trader?

It's very interesting that stock market and bond market are painting quite different pictures about US economy: Dow Jones index just reached all-time high yesterday while the 10-year bond yield has been declining in the past a few months.

Here is what this week's Economist says:

It is hard to see how both the bond and equity markets can be right. Equity investors seem to assume that the global economy will display the same resilience as it has in recent years; taking that view has been a bet that has paid off since 2003. But the bond markets almost have an each-way bet on a slowdown: “Ashes to ashes, dust to dust, if the Fed doesn't get you, then
housing must.”

The forecasting record of bond markets is not perfect: remember the deflation scare of 2003? But given the scale of the decline in yields, and the fickleness of stock markets, it would be foolish to bet against the bond market's judgment.

Here is how Econbrowser tries to reconcile the seemingly conflicting signals:

Well, here's a story that I believe could reconcile everything. The housing slowdown is significant, real, and upon us now, but this is as bad as it's going to get. Inflation numbers will begin to look better, allowing the Fed some breathing room to bring rates down slightly, averting a complete meltdown in housing. We get slower real economic growth, the biggest burden of which is borne by homebuilders. But the benefits of taming inflation bring some cheer to the rest of Wall Street and perhaps Main Street.

In other words, markets seem to believe that Bernanke is going to pull off the soft landing after all-- slower real growth for sure, lower inflation, but no recession.

On this, the markets may or may not prove to be right. But I don't see any other way to try to tell their story.

I'd put more confidence in bond market: stock market tends to be a lot more volatile than bond market thus a less reliable leading indicator. Another reason I am siding more with bond traders is that I think housing cooldown/correction/slump is far from over: the price runup during the past a few years is just too big to be corrected in short time and it's too soon to say the worst is behind us.