[Y]ou can expect weakness in U.S. stocks for the rest of the year for traditional, seasonal reasons. ... Going back before the Crash of ’87, October has always been a bad month for stocks. Now it’s almost become superstition. ... The second seasonal factor that tends to punish stocks is Christmas. People will sell stocks to buy gifts. Happens every year, and its impact grows as a Bull market grows and during positive years for the market. Both the third and fourth effects are related to taxes: tax-loss selling and fund-gain distributions. The annual tax-loss sell-off occurs in November and December when folks figure out what they have "realized" in capital gains (from stock sales) and decide to sell some of their weak stocks in order to offset their gains with losses. Happens every year, especially "up" years like 1997. Finally, mutual funds do their annual capital gain distribution in December. Once a year, a mutual fund distributes all of its annual, realized capital gains to its shareholders in the form of a dividend. The shareholder is then taxed on the gains. Many mutual fund holders know this and will sell the shares of the fund prior to the distribution to avoid the dividend and thus the tax. All of the above mentioned factors puts sell pressure on stocks. It’s very much related to a phenomenon of the market called the January effect. January is historically the best months for stocks. They tend to rocket up in that month. Do you understand why, now? The main reason is that people who have sold stocks to avoid taxes go back into them in January. http://www.valentineventures.com/ILVolume3/Volume3No4.htm
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