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Merry Christmas from the Montgomery team

Merry Christmas from the Montgomery team

As we approach the end of the year let’s briefly reflect on the major developments of the year and share some thoughts about what may transpire in 2024.

At the end of 2022, my overriding prediction was that 2023 would not see a recession in the U.S. or Australia and that it would be a broadly positive year for equities, especially innovative companies with growth or pricing power. This view was not a widely shared one. Looking back, with the S&P 500 Total Return Index up 20.80 per cent in calendar 2023 (from 1 January 2023 to 30 November 2023) and the S&P/ASX 300 Accumulation Index up 4.58 per cent for the same period, the non-consensus view has proven useful, if not prescient.

The one deficiency in my forecast was that smaller innovative companies would also do well. They didn’t. Not in aggregate, anyway. The S&P/ ASX Small Ordinaries Index has only returned 0.56 per cent from 1 January 2023 to 30 November 2023.

This leads me to contemplate the outlook for 2024. Last month, in November 2023, U.S. 10-year and two-year Treasury bond yields plunged amid optimism that the U.S. Federal Reserve has concluded its interest rate hiking cycle and may cut rates next year.

In the meantime, according to the CME’s FedWatch Tool (a tool which measures market expectations for Fed fund rate changes), markets are pricing in a greater-than 50 per cent chance that benchmark interest rates will fall more than 125 basis points by December 2024. Most recently that view was backed by none other than the Federal Reserve’s Chair, Jerome Powell.

I don’t know if rate cuts are a certainty but I remain convinced that even expectations of interest rate cuts will be positive for the market valuation of smaller companies, especially those high-quality issues our managers tend to acquire.

The gap in performance between large-cap innovative companies – the Magnificent Seven, for example – and their smaller peers, and the narrowness of the rally in large-cap stocks this year, suggests to me many quality small caps will be on professional investors’ radars.

They could ‘catch up’, especially if the macroeconomic background includes positive economic growth and disinflation. In any case, if one remembers that buying and selling a stock on the same P/E delivers the same annual return as the earnings per share growth rate that the company produces, investors should do well given small cap P/Es remain at historically compressed levels.

The Montgomery team will all be taking a break from blogging over the Christmas and new Year period, so you can too. We’ll be back from the beginning of February with a fresh raft of insights and investment ideas.

From all of the team here at Montgomery we wish you and your families a safe and happy Christmas and we hope that 2024 delivers you and your loved one’s immeasurable joy.

If you would like to catch up on some holiday reading, you can re-visit our top ten articles from 2023 via the links below:

Why Australian Eagle believes CSL is a ‘dream company’

Why you should avoid the siren call of high-dividend stocks

Dear young investor: MINIMISE your contributions to super

Two stocks we currently like

The three-bucket strategy for building a retirement portfolio

Three learnings from Polen Capital’s recent Australia tour

Banks have left a $240 billion gap, now savvy investors are seeing opportunity

The surge in uranium stocks: Why we like Boss Energy

The RBA acknowledges boomers win and mortgagees lose

Hidden in plain sight: our quest for quality around the world


Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. Thanks Roger,
    A great and safe Merry Christmas to all at Montgomery, followed up with the same for the new year
    I have followed you web site and blog for years and have always found your articles stimulating, full of common sense, and knowledge and made some money on the way by still holding on to gems like Cochlear, and Real Estate.com.au purchased at very much lower prices then they are today.
    Stay well and safe.
    Best Wishes
    Garry Peck.

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