The market started the new quarter in a way we haven’t seen for 70 years. All three major indices posted a gain of better than 3%. According to Bloomberg, it is the best start for the second quarter since 1938. Actually today’s rally was so huge that some traders started to wonder whether it was simply an April fools’ joke.

Ironically, it was UBS’ record write-down that triggered today’s huge rally. The biggest European bank announced earlier that it would make a further write-down of $19 billion following the collapse of the US sub-prime mortgage market. The news initially sent its stock price to drop more than 7% in early trading in Europe. But investors then started to realize that with today’s huge write-down, the worst is probably over so they pushed its stock price higher. At the end of the day, the stock went from a loss of more than 7% to a gain of 12% - a remarkable reversal. The US financial firms benefited nicely from the UBS reversal and became leaders in today’s broad rally. The economic news of the day also gave a boost to today’s rally. The ISM manufacturing index came at 48.6, still below 50 but better than 47.5 expected. Within the ISM survey, new orders decreased to 46.5, the lowest since Oct 2001 and production fell to 48.7. But the index got some help from exports and employment, which climbed to 56.5 and 49.2 respectively. Separately, the Construction Spending decreased 0.3% in February, also better than consensus that calls for a drop of 0.9%.

Even with today’s rally, the market is still down more than 6% for the year and almost 14% from the peak reached last October. As today is the first day of the new quarter, it is quite likely there is some rebalancing going on among various asset classes. Both treasuries and commodities, two biggest winners during Q1, were sold off while the US dollar recouped some losses from the previous quarter. The Fed Chairman Bernanke is going to give his economic outlook tomorrow and the market will listen carefully to what he is going to say.