NEW YORK ( TheStreet) -- Equities may be at record highs, but the bond market tells a different story - and it's not as rosy. That's the assessment from Morningstar's Matthew Coffina.

"The bond market seems to be a lot more pessimistic about the U.S. economic outlook than the Federal Reserve, which continues to hint at short-term rate increases starting in 2015," he said in his quarterly stock market outlook report.

Yields on the 10-year Treasury stand at just 2.22%, compared to 3% at this time last year. The bond market and equities should be moving in tandem. Plus, investors are moving into defensive stocks, a strategy typically implemented during tense times, driving up the price of the sector.

"Investors continue to rotate toward defensive sectors such as consumer staples, health care, and utilities, helped in part by the steady decline in long-term interest rates," Coffina wrote.

He says these sectors are trading above his fair value estimates and have outperformed over the past quarter. Amid some of the signs the Santa Claus rally, which has pushed stocks to record highs, may be over, Coffina says there are pockets of opportunity, largely in stocks that have been pummeled by falling oil prices, which now stand at a five-and-a-half year low.

"As of mid-December, the median energy stock in our coverage universe was trading 27% below our fair value estimate, making energy the cheapest sector on that measure by far," he added.

Though Morningstar analysts says the drop in oil prices is temporary and maintains a $90 long-run price target for West-Texas Intermediate. When oil makes a dramatic recovery, the bruises plaguing energy stocks in recent weeks should quickly heal.

-Written by Scott Gamm in New York.

Follow @ScottGamm.

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