September 2010 Bucked the Seasonal Trend

2010 had the best September the stock market has had since 1939. September is typically a down month. Once again we see that with investing, like most things in life, there are always exceptions to the rule.
Seasonality experts look at a particular time frame or month and make predictions based on what typically happens during that period. For example, a common seasonal behavior that affects the financial markets is when funds and investors sell their losing positions in December to capitalize on losses for tax purposes. Then, in early January, money flows back into the market as this money is reinvested.
Another common and predictable event is when fund managers sell their losing stocks and buy winning stocks toward the end of the quarter. This makes their holdings look better for the marketing material that comes out at the end of the quarter. This practice is known as window dressing.
While a few experts have capitalized on seasonal trends, for most investors it makes more sense to look at the direction of the overall market than try to get in on smaller seasonal moves. Right now the market is headed up. It will be interesting to see how long the uptrend lasts. While the markets and the economy gives us clues for direction, only time will tell for certain where the financial markets are headed.

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