The above graph plots both bond yields and corporate earning's yields over the past 50 years. I like to use these types of graphs as a gage of relative value between stocks and bonds. I don't use them to try to time the market, but to determine which investment is cheaper at the moment. Right now the 10-yr Treasury yields 2.7% while the earnings yield of stocks is 6.8%. Under these circumstances, the rational investor would invest in 10-yr government bonds only if they thought corporate earnings were going to plunge over the next year or two. I personally see the economy continuing to limp on for the near future at low to modest growth levels, yet bond inflows are on the rise while stocks are experiencing outflows. I believe the bear market of 2008-2009 is still fresh in people's minds, and the weakness of the recovery, the perception of an anti-business political environment and the fear of a double-dip recession is driving some people to seek safety. Locking in 2.7% for 10 years is not the kind of return I am seeking for my portfolio, but everything is relative.
Another way of looking at the same basic idea is the graph below:
When the graph enters positive territory stock earning yields are more attractive than bond yields on a relative basis.