US stocks closed out August with the main indices posting a fifth consecutive monthly gain. The NASDAQ moved into record territory thanks to a rally in biotechnology stocks. Elsewhere, the market has been supported by corporate earnings and a positive trend in economic growth. In addition, the first trading day of September produced gains on expectations that a weaker than expected rise in August non-farm payrolls would dampen any desire to increase interest rates further in 2017.
Since the US elections in November 2016, markets have generally gained on hopes that the Republican Party would implement tax reforms, introduce banking deregulation and increase infrastructure spending – policies designed to drive global economic growth. Although market commentators remain cautiously optimistic there is no doubt that valuations continue to look quite full. Despite a generally accommodating backdrop, the delay in passing reforms and the recent tension over North Korea pose a risk to further progress. Given high valuations, geopolitical concerns and an intensifying debate over raising the debt ceiling to fund the Hurricane Harvey recovery measures, a degree of caution is certainly warranted.