FIRST QUARTER: 2010

The major indexes have been trading in a relatively narrow range during the past 8 trading sessions and this activity may be misleading. Although it appears that calm has returned to the markets, in reality the stock market is on a roll.

Standard and Poor’s reports that stocks are up 4.9% year-to-date and are coming off their best first-quarter performance since 1998. It’s the fourth consecutive up quarter, the market’s best run since the five-quarter run that ended after the third quarter of 2007.

However, this quarter’s gains might not seem as good as the jumps during the past three quarters when stocks roared back from bear market lows. It is also important to recall that mid-way through this quarter the market was close to recording its first correction, [10% sell-off] since this bull run began.

In reviewing this quarter and the prognosis for the future, certain questions must be answered. Some pundits believe that as the first quarter rallied, faded and then recovered, that this is a signal stocks are ready for a downside correction.

First quarters are not usually the market’s best as stocks have gained just 1.9% on average during the first quarters going back to 1945. Although that beats the average 0.5% gain during third quarters, it’s far less than the 3.6% average gain in fourth quarters.

Half of the top 10 best stocks in the S&P 500 in the first quarter were financials. Leadership could spread if history is a guide. The second quarter is the only one in which all 10 sectors averaged gains since 1990, S&P reports.

It is important that investors not allow the first-quarter performance to make them too comfortable. In these volatile times we are inundated with information and it remains vital to constantly monitor your positions and use “stop loss: orders to minimize losses.