The great stock market rally that started in March 2009 stalled out and reversed in the second quarter of 2010, with the main indexes off by double-digit percentages, and many stocks faced a much worse pummeling.
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Second Quarter Performance
The S&P 500 fell by 11.86% in the quarter ending June 30, 2010, capped off with a 5.4% loss in June 2010. Although the perception was that small caps did much worse than their large-cap brethren in the second quarter of 2010, the S&P SmallCap 600 actually did slightly better, and fell by 9%.

The breadth of the market was terrible as well during the second quarter of 2010, with only 68 issues in the S&P 500 advancing during the quarter, and 432 issues down.

Cyclical Stocks Hurt the Most
Although the large cap index was down by nearly 12% during the quarter, many stocks did much worse. The most damage was seen in those stocks leveraged to the economy, as investors started thinking more and more about the so-called double dip in the economy. This paranoia has been fed by recently released economic data on the U.S. and global economy.

U.S. Steel (NYSE:X) fell 45% in the second quarter, and is down substantially from its 52-week high of $70.88. Investors are concerned about a slowdown in orders as customers assess the economic situation before committing to buying more steel. This is occurring just as costs for the raw materials used in making steel, iron ore and metallurgical coal, move higher. This is putting the industry in a margin squeeze, as it can't pass on the higher costs to customers as easily as in the past.

Despite this perception, AK Steel (NYSE:AKS) just announced surcharges for some steel products for August 2010. The company is passing through a $385 per ton surcharge on electrical steel products based on June 2010 raw material and energy pricing. AK Steel lost more than half its value during the quarter, and is off 56% from its peak back in January 2010.

Other Sectors
Stocks in other sectors of the S&P 500 also saw considerable damage during the second quarter of 2010. Office Depot (NYSE:ODP) has also lost 50% of its value since peaking at $9.19 back in late April 2010. This decline was kicked off by the company's first-quarter earnings report, which disappointed some investors. Sears Holdings Corporation (Nasdaq:SHLD) also had a tough quarter, falling 42% as investors abandoned this large retailer that owns the Sears and K-Mart chains.

Bottom Line
The second quarter of 2010 was not a great time to be invested in the U.S. stock market, as the rally off the bottom in March 2009 reversed course. This left investors that owned a large capitalization market portfolio down by 12%. (For more stock analysis, take a look at Money Is Made In Down Markets.)

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