February 2017 records President Donald Trump’s first full calendar month in office and the so-called Trump Rally continues with a 3.97% gain on the S&P 500. The month has also recorded the longest record-breaking run on the Dow Jones since 1987.
The prospects of significant tax reform, increased infrastructure spending and the easing of the regulatory environment continue to support the market; however, gains have started to slow. There is a growing concern that reforms may take longer to pass through congress as the President relies on substantial promises with a lack of specific detail. Indeed, his address to Congress was seen as somewhat reserved and lacking in detail about his economic plans.
The focus now moves to the Fed with markets pricing in a 50% chance of an increase in interest rates later this month. Comments from a number of Fed members support this view and paint a rosier picture of the US economy. Such optimism about the economy is feeding positive sentiment in the market and three rate hikes in 2017 could be palatable. The current low interest rate environment adds some support to the market however; a projected price earnings ratio of 18 times suggests valuations are becoming a little stretched.
What happens next depends on the action taken at the policy-setting meeting on the 14/15 March and of course the risks of the forthcoming elections in Europe.
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