It might have been a bumpy ride, but the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is still set to record its best start to the year in decades. Since starting the year at 5,411 points, it has risen to roughly 5,925 which measures a gain of nearly 9.5% in the last three months.
As highlighted by the Fairfax press, the last time the ASX 200 experienced such a strong three-month period was in the September quarter in 2009, however, it's set to be the sharemarket's best first quarter performance since 1991.
The index's rally has largely been driven by strong performances on Wall Street, together with mounting expectations of further interest rate cuts locally by the Reserve Bank of Australia. The RBA slashed rates for the first time in 18 months in February and while it failed to do so in March, the markets are confident the cash rate will be cut to 2 per cent when the RBA meets next week.
As a result of these expectations, the nation's biggest dividend-paying stocks have rallied strongly. As an example, Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA) all achieved new all-time highs last week, while Telstra Corporation Ltd (ASX: TLS) is also hovering near a multi-year peak.
With the index now sitting dangerously close to breaching the 6,000 point mark for the first time in seven years, many stocks have become expensive – particularly given the severity of the commodities crisis which is heavily impacting our all-important mining sector. As such, investors need to be as careful as ever not to overpay for their investments.
In saying that, many pundits are suggesting the market still has plenty of room to move, particularly if the RBA does follow through with further easing in monetary policy. Likewise, there are still plenty of fantastic companies out there, many of which are trading at attractive prices right now.
