ASX expected to open higher following US stock rally; rotation into smaller caps seen positively

From Brisbane Times: 2024-07-16 16:45:14

The Australian sharemarket is expected to open higher after US stocks surged to record highs. The S&P 500 hit 5660, the Dow Jones rose 1.9%, and the Russell 2000 gained 3.5%. ASX futures point to the S&P/ASX 200 surpassing 8000 after losses in certain sectors on Tuesday.

Investors looked beyond large companies to smaller caps, with the Russell 2000 outperforming the Nasdaq 100 by 12 percentage points in the past four sessions. This shift towards smaller firms is seen as a sign of hope for a broader market rally as sentiment grows around potential rate cuts.

Rotation of money into small caps is believed to be linked to expectations of rate cuts by the Federal Reserve. If rate cuts support a soft landing for the US economy, there could be improved earnings growth prospects for lower quality and cyclical market segments.

The rally in smaller firms is also attributed to their perceived benefit from a potential second term for Donald Trump, due to their domestic focus. Treasury yields dropped, gold prices climbed to a record high, and traders analyzed mixed earnings reports from companies like Bank of America and Morgan Stanley.



Read more at Brisbane Times: ASX set for gains after US stock rally broadens; gold hits record