Finally, things were sunny.

I like to review the market's monthly and quarterly performance -- it helps me keep things in perspective -- and March was finally different: The market was up, and up big. That certainly wasn't the case when I reviewed the mood in January and February.

Last month, I mentioned David Kostin of Goldman Sachs, who targeted 650 for the S&P 500. Turns out, Kostin hit the nail on the head: The S&P 500 index declined to 666 (ominous!). When it comes to forecasts, that one was spot-on.

But let's keep the fundamental picture in perspective. The economy is slowing due to a vicious deleveraging cycle (read: debt liquidation), and the only way it can re-accelerate is by piling on more debt. This will happen neither fast nor easily due to tighter lending standards and dysfunctional securitization markets -- repackaged mortgages, student loans, credit card debt, car loans, etc. – which, when operational, facilitated the indiscriminate lending boom that got us here.

Who is to blame?
Many have blamed the recent decline on short-sellers. I beg to differ. There is nothing wrong with legitimate short-selling. Peter Boockvar, the equity strategist for Miller Tabak, summarizes the issue well:

Short sellers (SS) didn't get people to buy homes with no money down, SS didn't convince people to buy homes with teaser rates, SS didn't convince people to lie about their income on their mortgage applications, SS didn't tell banks/brokers to lever up to such huge levels, SS didn't tell Greenspan to cut rates to 1% and leave it there, SS didn't invent Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), SS didn't tell the OTS, OCC, FDIC, Fed, SEC, FFIEC, FTC, FHFA, and all the state regulators to twiddle their thumbs all day, SS didn't tell the rating agencies to rate AAA on anything that moved, SS didn't tell banks to lend to commercial real estate investors on a property where the rent didn't cover the mortgage payment, SS didn't tell the average consumer to spend more money than they make and borrow difference.

Short selling is a legitimate form of speculation that fully enhances market liquidity and price discovery.

I could not agree more with Boockvar. In my experience, short-sellers are the ones who get blamed when many investors forget to do their homework.

The March rundown
Let's take a closer look at the performance of the major S&P 500 sectors from last month:

Sector

March 2009

Q1 2009

2008

S&P 500

8.54%

(11.67%)

(38.49%)

Energy

3.71%

(12.08%)

(35.93%)

Materials

14.93%

(2.82%)

(47.05%)

Industrials

9.16%

(21.77%)

(41.52%)

Consumer Discretionary

12.01%

(8.61%)

(34.73%)

Consumer Staples

3.55%

(11.31%)

(17.66%)

Health Care

6.33%

(8.52%)

(24.48%)

Financials

17.66%

(29.49%)

(56.95%)

Information Technology

12.08%

3.96%

(43.68%)

Telecom

5.91%

(8.47%)

(33.62%)

Utilities

2.09%

(11.86%)

(31.55%)

Source: Standard & Poor's.

What was up the most in March? Financials, of all things, were up almost 18% -- but even that couldn't erase the sector's 29.5% first-quarter plunge.

And those darn short-sellers might be to blame -- they get squeezed every time we see a rally, so the worst sectors often lead the rebound. And in the worst sectors, the worst stocks rally the most. For example: Citigroup (NYSE:C) outdoes JPMorgan Chase (NYSE:JPM) to the upside, Bank of America (NYSE:BAC) outdoes Wells Fargo (NYSE:WFC) … you get the picture.

But I have always been a top-down guy, and all top-down analysts stick with the strongest stocks in the sectors they like. So, for example, I've written (here and here, at much lower prices) favorably about Goldman Sachs (NYSE:GS).

I remember well the bear market rallies of 2001 and 2002, when technology always led the way on the way up, yet always managed to end up down more than any other sector for the year. We're seeing the same thing with financials right now. Given the beating they took in the Nasdaq crash, it might seem somewhat surreal that tech stocks are now the good guys. How about that?

Tech was the third-best performer in March and is the only sector up so far for the year (4%), whereas the S&P 500 is down 11.7%. I never thought I would see that.

Light at the end of the tunnel? Or, an oncoming freight train?
The second-best performer for the quarter (minus 2.8%) and for the month of March (14.9%) was Materials, a heavily cyclical group, and this perkiness may mean that the economy is getting less bad.

I am a little worried that Materials' bigger cousin, Energy, was only up 3.7% in March and down a good 12.1% for the first quarter, but hey, you can't win them all.

If energy perks up later in the year, I will feel better about this economic recovery. Was that the market bottom? Right now -- and sorry to disappoint any Fools hoping for a prognostication -- it's just too early to tell.

The Chinese are not waiting for the world economy to pick up and are already making many moves. They are forward-thinkers. Maybe they see something we don't?

More on the market:

Fool contributor Ivan Martchev does not own shares in any of the companies in this story. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.