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Market surprise: September to remember for stocks

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September has a history of leaving stock portfolios drenched in red ink. But this year it has bucked its reputation as being the worst month for stocks—at least so far.

Thanks to a spate of positive surprises that caused some big market worries to fade from view, at least for now, September is off to a surprisingly bullish start, although some storm clouds may be forming in Washington, D.C.

The Dow Jones industrial average hit a record high Wednesday and is still up roughly 700 points this month despite Friday's triple-digit drop. The Standard & Poor's 500 index also hit a fresh all-time last week and was up 11 of the first 12 trading days, a hot streak seen only three other times in any month over the past 40 years, says Ryan Detrick, an analyst at Schaeffer's Investment Research.

Heading into September, investors were worried about a brewing market crisis that could cause a big drop, Detrick says. Worries included a potential war with Syria, the Federal Reserve turning off its stimulus spigot, and infighting among lawmakers that could cause another fiscal mess. There also was fear about September itself, given its weak performance history.

(Read more: Did the Fed just pop the stock market bubble?)

What they got instead was a string of good headlines that put many of these fears on the back burner. The Fed postponed its first "taper" of its bond-buying program. President Obama put a military strike on Syria on hold. And in the race to replace Fed chief Ben Bernanke, ex-Treasury secretary Lawrence Summers—viewed as less market-friendly than rival Janet Yellen—took himself off the short list for the job.

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"A lot of folks headed into September afraid," says Bruce Bittles, chief investment strategist at R.W. Baird. "But the market got three big favorable news items. Syria, Summers and the Fed were all unexpected surprises."

The question now is: Will the good times last, or will investors' growing optimism prove fatal?

(Read more: Fed speak, DC drama could rattle the market)

Detrick's research shows the three other times the S&P 500 rose 11 of 12 sessions to start a month, it finished the month even higher every time, posting average gains of 1.8 percent.

But as Sam Stovall, chief equity strategist at S&P Capital IQ, points out: "Investors can always find a reason to be worried."

So what's worrying investors now?

• Political risk. Democrats and Republicans are fighting again about the nation's finances. What's the risk? If they fail to pass a funding bill before the new fiscal year starts Oct. 1, a government "shutdown" is possible. And if they don't raise the debt ceiling in coming weeks, the nation could run out of money to pay its bills and default on its debts.

Both scenarios would likely cause market turmoil and hurt the economy.

"The market," Stovall says, "is worried about Congress ... (causing) drama again."

Old risks return. "There are definitely reasons for the market to suffer a hangover," says Mark Lamkin, chief market strategist at Lamkin Wealth Management.

For example, confusion over the timing and exit strategy of the Fed's complicated bond-buying program could escalate. Comments from St. Louis Fed President James Bullard on Friday that said the taper could start in October gave investors pause. Interest rates could spike again, as well. And the diplomatic solution to the chemical weapons crisis in Syria might not pan out, putting a U.S. military strike back on the table.

• Earnings risk. The third-quarter earnings season is just a few weeks away, and investors, Stovall says, are sure to ask, "Do we have enough earnings growth to justify elevated" stock prices and valuations? Profit growth of 3.8 percent is expected for the September-ending quarter, down from 4.9 percent last quarter. And the 10.1 percent growth in profits expected in the final quarter of 2013 might be too rosy, he adds.

But for now, stocks look good as long as the Bernanke-led Fed keeps pumping cheap money into the economy and markets, Lamkin says.

(Read more: Bulls gone wild: Money flows hit a new record)

—By Adam Shell, USA Today.

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