Time to put away the Rolaids??  After 6 consecutive quarters of declines, the U.S. equity market finally posted a positive quarterly return.  The market rally that started in early March persisted through most of the June quarter.  The U.S. stock market was up 16% in the quarter, and international markets increased even more.  Market sectors that were once considered pariahs advanced the most.  Financial stocks, as an example, were leaders with gains in excess of 30% as several large banks raised capital to repair their balance sheets.  In international markets, the emerging markets were the leaders with India up over 50% and China up over 35% in local currencies.  High-quality stocks with strong balance sheets underperformed highly leveraged, cyclical sectors of the market that were beaten to a pulp over the past year.  Ditto for the bond market as the higher risk “junk bond” segment outperformed the rest of the bond market.  The “lower risk” Treasury market actually posted its worst quarterly returns in years as the 10-year Treasury lost over 6% in the quarter.

Is the market’s sharp advance from the March lows just a relief rally or the start of a longer term advance?  The stock market posted one of its worst 15 month returns in its history coming into March.  In fact, from October 2007 through March 2009 the S&P 500 lost half its value.  Clearly, markets were due for a bounce.  By March fears of more bankruptcies, bank failures, and economic ruin were reflected in lower stock valuations.  Buyers finally regained consciousness, cleared their heads, and regained confidence that this recession, like all recessions, will eventually end and stocks will not go down forever.  Investors embraced the notion that the worst of the recession in developed economies had passed and developing economies led by China were actually showing solid growth.  Based on the performance of financial stocks, there was a sense that the financial system had been stabilized.