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What we have seen from the first quarter


What we have seen from the first quarter

In this week’s video insight Roger reviews what has happened during the first quarter, the performance of markets so far and what’s important looking forward. All eyes are on the short and long-term plausible paths for monetary policy. Despite this, Roger remains optimistic for investing in high-quality businesses generating double-digit earnings growth.


Roger Montgomery:

In November and December, I wrote several optimistic articles about possible equity returns in 2023. In a December 2022 article entitled, why 2023 could be a good year for investors, I noted poor returns years are rarely followed by equally poor years and indeed are frequently followed by exceptional years. I also noted poor years tend to exist in isolation rather than clustering. 

In January 2023, I pointed to the compression in P/E ratios and the double-digit earnings growth expected for many high-quality companies. And in early March, I pointed to the risk of believing a U.S. recession is a foregone conclusion.

Well, we’re a quarter of the way through our year and so far it has turned out ok.

Equities and bonds initially rallied through January amid optimism surrounding a halt to rate rises by global central banks, which in turn generated expectations of rate cuts later in the year. Those expectations, I believe, are misplaced.

Then, in February, robust U.S. economic data sunk those hopes. March then witnessed the collapse of several large regional U.S. banks and the merger of failed Swiss bank Credit Suisse, with UBS, ending Credit Suisse’s 166-year history as a stand-alone bank. The events prompted fears of global financial contagion, causing equities and bonds to reverse their earlier gains.

But by the end of March, level heads prevailed, the fears eased, and investors returned to expecting the U.S. Federal Reserve would cut rates by the end of the year, thanks in no small part to the Fed hinting the pace of rate rises might slow.

Despite the turbulence, the S&P 500 gained seven per cent in the quarter, the Nasdaq Composite rose 16.8 per cent and the Dow Jones Industrial Average just broke event, rising 0.4 per cent.

After their worst year ever in 2022, U.S. 10-year Bonds opened the year at 3.88 per cent and ended the quarter at 3.54 per cent. And the Bloomberg U.S. Aggregate Bond Index gained 2.5 per cent for the quarter.

The quarter was also marked by a clear increase in the adoption of risk. Bitcoin soared 71 per cent in the March quarter, rising from $16,576.25 to $28,419.36. Its stablemate, Ethereum rose 52 per cent to $1,825 from $1,198.

In Australia, the S&P/ASX 200 Total Return index rose 3.4 per cent, while the ASX Small Ordinaries rose 0.9 per cent.

All eyes are on the short and long term plausible paths for monetary policy. While accelerating ‘disinflation’ is cause for optimism, it’s important to realise that the performance of bitcoin in the quarter and the stabilising of house prices domestically mean ‘animal spirits’ are already emerging – merely at the mention of an end to rate hikes – and any pause to rate rises could trigger inflationary activity very quickly.

So, investors should remember the central bank path for monetary policy will be data dependent. Get too excited and central banks may have to get more involved.

I remain optimistic for investing in high-quality businesses generating double-digit earnings growth. These are the sorts of businesses our small cap team and our partners including Polen Capital, Aura and Australian Eagle are investing in or financing.


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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