The US stock market just hit new 2-year lows. But it's not all bad news

Could there be a light at the end of the tunnel?

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Key points

  • The S&P 500 slumped to a 2-year low last night and is on track to deliver its worst September performance since 2008 
  • But there are a few reasons why investors shouldn't be throwing in the towel now 
  • A positive uptick in US stock futures, the end of a seasonally weak trading period and the prospect of a Santa Rally could turn the tide 

The US stock market is likely to suffer its worst September since 2008 but there may be light at the end of the tunnel.

The S&P 500 Index (SP: .INX) tumbled 2.1% last night to its lowest level since November 2020 and it's lost nearly 9% this month. The Nasdaq Composite Index (NASDAQ: .IXIC) fared worse last night with a 2.8% retreat to a fresh low this year.

Why the US stock market is falling

It's a case of good news being bad news. Resilient jobs data in the US is reinforcing the view that the US Federal Reserve will need to keep lifting interest rates aggressively to fight inflation.

The negative sentiment is spilling over to our market. The futures market is predicting a 0.3% drop in the S&P/ASX 200 Index (ASX: XJO) this morning.

Signs of hope for a turnaround

But there might be a little relief around the corner for embattled investors. US stock futures are trending up following Thursday's sharp sell-off on Wall Street.

The S&P 500 futures are up 0.3% and the Dow Jones Industrial Average Index (DJX: .DJI) futures are pointing to a 0.2% gain, reported CNBC. The NASDAQ-100 Index (NASDAQ: NDX) futures are also indicating a 0.1% gain for the tech heavy index.

Could the worst be over for the US stock market?

It might be too early to pop the champaign, but investors have another reason to celebrate. This month is just about over and September has a notorious reputation of being the worst month for the US stock market.

In fact, history has shown that US equities have fallen almost every September over the past several years.

Given the ASX 200's correlation to the US share market, September isn't a great month for us either. Our top 200 share index is nursing a loss of around 6% for the month.

When bad news could be good

But there are two other reasons to be hopeful. The flood of doom and gloom headlines about shares and the economy may signal that the bottom could be closer than you'd think.

The overwhelming sense of pessimism tends to overtake everything just before the bear market turns. I am not suggesting we are there yet, but this is how bad news can turn good.

Will Xmas save US and Australian shares?

The other thing worth remembering is the end of year Santa Rally. This is another seasonal trend that occurs as dependably as the September sell-down.

If next month's US inflation data shows signs that price pressures are easing, this might just be enough to convince bargain hunters to jump back into the US stock market.

There is no doubt that ASX investors will also be basking in the afterglow should US sentiment turn positive.

It's a big "if", but most share investors are by their nature a "glass half full" kind of crowd, aren't we?

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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