April 4 (Bloomberg) -- The best trade on Wall Street these days may be buying Wal-Mart Stores Inc. and companies whose earnings will increase as the U.S. economy recovers, while selling the banks that were behind the subprime market meltdown.

Even as the 23 percent drop at Goldman Sachs Group Inc. and 27 percent plunge in Citigroup Inc. made the first quarter the worst for U.S. stocks in more than five years, Wal-Mart reached a three-year high on the New York Stock Exchange. The world's biggest retailer, Darden Restaurants Inc., owner of the Olive Garden chain, and Pulte Homes Inc., the second-largest U.S. homebuilder, had their fastest start since at least 2004 on speculation spending will hold up as interest rates fall.

An investor who shorted, or borrowed and sold, $1 million of Goldman in January and February and used the profit to buy Wal- Mart shares in March would have made $224,000 before transaction costs as of March 31, or an annualized return of 90 percent.

``The U.S. economy's had its ups and downs, but for all that's gone wrong there's a tremendous amount of personal income being generated,'' said Michael Aronstein, 54, president of Marketfield Asset Management LLC and a 29-year veteran on Wall Street. ``There's activity going on and in some sectors it's proceeding with a lot of vigor.''

Aronstein's New York-based fund climbed 7.5 percent since it began Oct. 12, three days after the Standard & Poor's 500 Index rose to a record, compared with a 12 percent drop in the benchmark for American equities.

$200 Billion in Losses

The S&P 500 fell 9.9 percent in the first three months of 2008, led by a third-straight quarterly decline in financial shares, as credit-market losses surpassed $200 billion and Bear Stearns Cos. collapsed. The index increased 0.1 percent today.

Bear Stearns, once the largest underwriter of U.S. mortgage debt, tumbled 88 percent in the first quarter, while Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, dropped 42 percent. The banks, both based in New York, led financial shares in the S&P 500 to a 15 percent drop.

Bear fell 25 cents to $10.47 today. Lehman added 73 cents to $44.05.

Wal-Mart, located in Bentonville, Arkansas, rose 11 percent in the first quarter to a three-year high, while Orlando, Florida-based Darden climbed 17 percent, rebounding from a three- year low. Bloomfield Hills, Michigan-based Pulte Homes led homebuilders to a 16 percent advance.

Financial companies ``are extremely weak, but there are parts of our economy that are booming and there are some real opportunities out there,'' Craig Hodges, chairman of Hodges Capital Management in Dallas, said in an interview on Bloomberg Television. The firm manages about $1 billion.

Profit Beats Estimates

Wal-Mart helped send food and staples retailers to a 1.4 percent gain. The discounter rallied after sales topped analysts' estimates in December and February and quarterly revenue exceeded $100 billion for the first time. The shares lost 53 cents to $54.40 today.

Darden posted its biggest first-quarter advance in four years after reporting 11 percent more third-quarter profit than analysts estimated on a sales boost from acquisitions and its Olive Garden locations. Two days later, RBC Capital Markets, a unit of Toronto-based Royal Bank of Canada, reiterated a $40 estimate for Darden, implying a gain of 14 percent from yesterday's close. Darden slipped 54 cents to $34.41 today.

Pulte rallied 55 percent in January on speculation five Federal Reserve interest-rate cuts would end the worst housing slump since the Great Depression. Homebuilders, which tumbled 56 percent last year and reached a five-year-low in November, posted their biggest increase since at least 1994 on Jan. 23, a day after policy makers cut the target rate for overnight loans by 0.75 percentage point. Pulte sank 10 cents to $15.81 today.

`Strong' Demand

Home construction ``probably has bottomed,'' Fritz Meyer, 57, the Denver-based senior market strategist at AIM Investments, said in an interview with Bloomberg Television. ``Longer-term, the demographics will drive very strong continued demand for new housing starts in this country.'' AIM manages $165 billion.

Falling home prices, job losses and curtailed access to credit may restrain consumer spending, delaying the economy's recovery from what Federal Reserve Chairman Ben S. Bernanke said this week might be the first U.S. recession since 2001.

Employers cut jobs for a third straight month in March and the unemployment rate rose to the highest since September 2005, a Labor Department report today showed.

Growth in exports as the dollar's decline has made U.S. products more affordable overseas is blunting the impact of the losses at financial companies, said Tim Hartzell, 48, a money manager at Legacy Asset Management Inc. in Houston, which oversees $200 million.

``There is still economic growth, it's just at a smaller level,'' Hartzell said.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.

Last Updated: April 4, 2008 17:45 EDT