United States of America
The end of September saw all the main US indices posting gains with the S&P 500, The Nasdaq and the Russell 2000 all achieving record highs. The latest push comes from a more detailed outline of President Donald Trump’s tax reform plan, which will continue to be a focus for investors. The plan looks to sharply reduce tax rates on businesses and many individuals.
The main beneficiaries of the tax reforms would be smaller companies and larger businesses looking to repatriate overseas earnings. Should the reforms be passed the US dollar would also be expected to strengthen. However, Donald Trump’s healthcare proposals failed to be passed and there is now some uncertainty over whether the tax reforms can be passed.
Turning to fundamentals, the market is supported by good corporate earnings and continued evidence of economic growth. However, many stocks have had a strong run and valuations are looking stretched. Indeed, there is evidence that some investors are rotating out of technology stocks and into the energy sector. In addition, there is a growing view that the US Federal Reserve will raise interest rates in December.
Despite a generally accommodative backdrop any delay in passing tax reforms in the US and the recent tension over North Korea does pose significant risks to further progress and a degree of caution is required. Also, with central banks slowly retreating from quantitative easing and monetary policy returning to normal we expect to see an increase in volatility after a relatively quiet summer.
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