Biggest Investment Themes for Second Quarter

BOSTON (TheStreet) -- After last year's triumphant rebound, the stock market was wheezing in the first few weeks of 2010. With the labor market sagging and consumer spending on hold, U.S. investors asked themselves "Now what?"

On Feb. 8, every industry in the S&P 500 Index had fallen at least 2%. By the end of March, the U.S. benchmark made up that loss and kept rising, finishing the first quarter up 5.4%. Global manufacturing heated up, business spending strengthened, and companies began to hire again, albeit slowly. Investors piled in.

Industrial companies gained an average of 13% in the first quarter, and financial and consumer-discretionary firms increased 11%. Only utilities, considered among the safest investments, fell.

Banks and other financial-services companies have prospered since the government made it clear the most important among them are "too big to fail." They've been given every advantage.

The other top-performing industries show more bullish signs. Gains in the industrial and consumer-discretionary sectors signal that investors are betting on so-called cyclicals as the U.S. pulls out of the deepest recession since the 1930s.

To be sure, the economy likely will continue to sputter for some time, and stronger growth will bring with it other challenges. Investors should expect mean reversion -- the stock market's current pace probably will slow.

On the following pages are three of the largest investing themes for the second quarter and how to play them.