NEW YORK (TheStreet) -- Equity markets rebounded sharply on Tuesday after a long holiday weekend.Economic data were better than expected, showing strong consumer confidence and a spike in housing prices. As sentiment continues to rise and the fear of an early end to quantitative easing subsides, risk assets should continue higher. Although the economic picture in the U.S. has picked up considerably throughout 2013, we are still far from the kind of fundamental strength needed to have a self-sufficient market. Markets look to be realizing this notion and acting accordingly. Below is the first chart of Barclays 1-3 year Treasury Bond Fund ( SHY) over Barclays 20+ year Treasury Bond Fund ( TLT). This pair represents the U.S. Treasury yield curve. When the pair moves higher it signals that short-term notes are outperforming bonds farther down the yield structure and is bullish for the economy.
Weak demand pervaded the U.S. debt auction on Tuesday, which pushed yields up towards yearly highs. The chart below signals that the yield curve, too, is nearing a breakout. Investors' movement out of longer-term bonds and fixed income in general means that risk assets should benefit greatly. Whether improved economic data are bringing confidence back to the markets or investors are selling bonds foreshadowing an end to QE, funds look to be seeking out higher-yielding assets at this time.
The release of U.S. GDP data on Thursday and a stronger consumer -- as seen today in consumer sentiment data -- should boost the reading. Stronger GDP should push the yield curve higher as well as equities.