Markets are throwing off some very negative signals about the U.S. economy. However, with economic data remaining relatively strong, the overhanging question is whether investors will begin to take those bad signs to heart.
Crude oil, typically taken as a barometer of industrial and consumer demand, continues its incredible plunge. The critical commodity has lost some 60 percent of its value in the past seven months, falling to levels not seen since the depths of the financial crisis in 2009.
Meanwhile, Treasury yields plumb new lows, with the 10-year yield falling below 1.7 percent on Friday even as the Federal Reserve looks to hike short-term rates. Across the Atlantic, German 10-year notes are yielding about 0.3 percent, and the Swiss 10-year yield is actually negative.
"If Rip Van Winkle were to wake up today and see where oil is and where bond yields are...he would be very tempted to say that we must be in a recession," said Nicholas Colas, chief market strategist at Convergex.
But of course, the U.S. is not in a recession. Even though Friday's gross domestic product (GDP) number showing annualized growth of 2.6 percent in the fourth quarter was a bit of a disappointment, full-year growth came in at 2.4 percent.
Separately, the employment numbers have been even better, which is set to be confirmed on Friday, when the Bureau of Labor Statistics is expected to report the 12th straight month of 200,000-plus gains in nonfarm payrolls.
Bright spot in a cloudy world
The outlook in much of the world, however is significantly cloudier. Europe and Japan are fighting disinflation and the specter of recession, which goes a long way toward explaining why yields are so low. Meanwhile, slowing growth in China is further tamping down oil demand (though crude oil's biggest problem is overwhelming supply).
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Ironically, the very market moves that would cause a long-sleeping financial observer to wonder if the U.S. is in the grips of recession are actually somewhat positive for the American economy and for equities. Low yields makes it relatively more attractive to hold stocks.
And low oil prices reduce energy costs for Americans and businesses, albeit punishing for energy companies. Indeed, it is no coincidence that consumption was a bright spot in Friday's GDP report, with real personal consumption spending rising by an annualized 4.3 percent in the quarter.
When it comes to the more narrow issue of the next move for stocks, however, the tie-breaker between markets and data must be corporate profits. After all, tracking the state of the U.S. economy is all well and good, but stocks are ultimately valued based on their expected stream of future earnings.
Even though analyst expectations for the first quarter of 2015 have come down of late (as estimates tend to do as the actual results draw nigh) FactSet reports that analysts expect S&P 500 companies to earn $122.05 in 2015, which would be a record high.
Additionally, many market participants believe that accomodative central bank actions will continue to provide strong support to stocks while crushing bond yields.
"Any metric you followed 20 years ago doesn't matter, because you're dealing with massive central bank manipulation and accommodation in an attempt to keep everything steady," said Michael Block, chief strategist at Rhino Trading Partners. "That's just the world we're in."
Block continues to be bullish on stocks due to the perceived "central bank put," though he says that volatile day-to-day moves will become the norm—which is causing considerable angst in the money managing community.
"The right thing to do is just the stay the course, but it's very hard for asset managers to buy things and walk away from them."
Unless, of course, they follow Mr. Van Winkle's lead and fall asleep for 20 years.
—By CNBC's Alex Rosenberg.
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