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Quarter-End Insights

Our Take on the Third Quarter

As the rally hits its seventh month, we take a look at the winners, losers, and places where value can still be found.

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Although the powers that be have yet to officially decree it, the third quarter will likely represent the end of the recession. A year after the collapse of Lehman Brothers sent credit markets into a tailspin, the economy seems to have finally found its bottom and is now trying to dig itself out of a deep hole. Huge challenges remain with respect to employment, debt levels, and deficits, but the worst appears to be over, and the market largely seems to have shrugged off any concerns. The Morningstar U.S. Market Index rose 15.7% over the last three months through Sept. 29, bringing the year-to-date return to 21.6%.

Small-cap stocks once again outperformed the broader market, rising nearly 22% in the quarter compared with 21% for mid-caps and about 14% for large caps. With 30%-plus returns for the year through Sept. 29, small caps and mid-caps are outpacing large caps' 18% return by a decent margin.

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Jeremy Glaser does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.