A month ago, things were looking up.

Home prices were inching up, unemployment was beginning to pull back and retail sales were up - all of these pointing towards a "recovery."

But things changed and we witnessed a market where prosperity or adversity was not tolerated for more than a day or so, made apparent by the sharp peaks and troughs in a matter of a few days.

Stock markets zigzagged over the European debt crisis, worsened last week with the downgrading of Spain by Fitch from triple-A to double-A-plus due to negative banking developments. A welcome respite came when China put to rest rumors it was planning to sell off European debt.

The stock market had rallied 80% from March 2009 and a correction, which is a decline of 10% from the most recent high (on April 23, 2010), was not all that surprising. Here's the good news: nearly 80% of companies in the S&P 500 beat analysts' earnings estimates for the first quarter, and furthermore, significant corporate-profit growth is expected in 2010, led by financial and material sectors.

Ned Davis of Ned Davis Research has made an interesting comparison to the bear market of 1962 which came in the second year of a Democratic president's term, while the economy was sturdy and interest rates were low.  "It was later blamed on stretched valuation and fears the administration was anti-business," Davis says and "was called a purely psychological bear market." Parallels, maybe?

We realize that although growth in Europe will be stunted due to the fiscal severity of some countries, global recovery is likely to continue carried out mostly by emerging markets, more specifically China.  Strong growth in the U.S. and emerging Asia can offset the weaker growth in Europe and we may realize 4% or more growth in world GDP.

And to end on a positive note: In years when stocks have lost 5% or more in May, they have averaged double-digit gains from June through August in most years.