Stocks are heating up. February’s roughly 3% return was doubled in March with a 6% increase in the S&P 500. Tech stocks logged in another market-beating month as the Nasdaq rose 7.14%, eclipsed by even hotter small-cap stocks which took the Russell 2000 up 8.14%. It’s as if everybody started getting sick of low yields on cash and CDs all at once. Most stock fund categories performed close to the S&P 500 in March.

In February the S&P 500 rebounded 3.09%, erasing most of January’s decline and leaving the index down 0.61% for the year (though still up some 53% for the last twelve months – a period starting at about the bottom of the market during the financial panic). Our average model portfolio is essentially flat, down 0.05% for these first two months of 2010.

Just about everything that went up faster in the comeback slipped harder in January. The Nasdaq slid 5.37% (though small caps were down 3.68%) more in line with the larger caps in the S&P500. Interest rates dipped down with long term treasuries returning about 2.5% for the month. Surprisingly, high-yield junk bonds were up for the month, bucking the overall trend of the meek doing better in January.

Normally when the S&P 500 goes pretty much straight up in a short period of time, as it has since the early March lows, we would expect to underperform because our portfolios tend to have some bonds or cash weighting them down, a performance gap we tend to makeup during the next downturn or as our out-of-favor funds start to beat the market.