Quarterly Investment Update


The index returns quoted below are for the period ended 31 March 2024.


Coming off a strong year in 2023, global markets continued their blistering pace in the first quarter of 2024. At one point early in the quarter, the market had priced in 7 interest rate cuts in the US and 3 in Australia for 2024. When combined with cooling inflation and economies holding up better than expected, the prospect of interest rate cuts sent the share market higher. However, these exorbitant expectations have since been pared back, which poses a conundrum for markets going forward.

International shares had a particularly strong quarter yet again, returning +14.1%. The “magnificent seven”, a group of US tech stocks, continued their stellar run amid the mania around artificial intelligence (AI). Nvidia, a key beneficiary of AI growth, saw its share price rise by +82% for the quarter. Over the last 2 years, Nvidia’s share price is up ~800%, yet is trading on the same price-to-earnings multiple as it was back then. So, the 800% share price growth has been supported by 800% earnings growth. That is incredible growth for what is now the third largest company in the world by market capitalisation, and only time will tell if the current trajectory can be sustained.

Back home, the Australian market was more subdued but still recorded a very pleasing quarter, returning +5.3%. Performance was more evenly spread across the board. The banks performed well despite rising competition and shrinking net interest margins, and consumer staples lagged due to the ACCC launching a pricing and competition enquiry into the supermarket industry which hurt Woolworths’ share price. We are constantly on the lookout for new opportunities to invest in and we are finding some interesting ideas in Australia despite the market appearing expensive on a headline level.

While earlier expectations had the market pricing in 7 interest rate cuts for the US in 2024 and 3 for Australia, these have been pared back to 3 and 1 respectively. The US has had two surprises now where inflation has reared its ugly head and come in above estimates. In Australia, remember the so-called “fixed mortgage cliff” that was spruiked as pending doom in 2022? To date there has been no material rise in arrears and while there are certainly pockets of the economy that have slowed down, the consumer is collectively in good financial shape. For as long as inflation remains above target and the economy is robust, it is going to be very difficult for central banks to cut interest rates.

While we are mindful of current valuations and the future risks in the market, we are comfortable maintaining our market exposure. We are big believers in staying invested over the long-term with a high quality, diversified portfolio which enables our clients to benefit from the power of compounding returns. As Benjamin Franklin famously quoted, “Money makes money. And the money that money makes, makes more money”.