Market Highlights: Wall Street hits fresh peaks as US small caps outshine megacaps

ASX200 futures indicate a strong rebound expected on Wednesday
Wall Street reached new record highs driven by expectations of Fed rate cuts
Small-cap Russell 2000 outperforms Nasdaq 100 significantly

The ASX200 index is expected to rebound strongly when the market opens on Wednesday, tracking gains on Wall Street. At 8am AEST, the ASX200 futures contract was pointing up by 0.7%.

Overnight, Wall Street soared and reset record highs once again as expectations that the Fed Reserve will soon begin reducing rates spurred an influx into riskier corners of the market.

The S&P 500 rose by +0.6% to a new record, the blue chips Dow Jones index surged by 1.85% also to a new high, and the tech-heavy Nasdaq lifted by 0.2%.

US trades waded through a bunch of data including the retail sales report, which revealed that June sales were higher than estimated, helping ease concerns about a significant economic slowdown.

According to CME FedWatch data, traders are now fully confident, with a 100% probability, that the Fed would begin cutting rates in September.

To stocks, Bank of America (BofA) and Morgan Stanley both ended the day with gains.

Despite BofA’s quarterly profit declining, it still exceeded estimates. Meanwhile, Morgan Stanley’s profit surged, signalling a potential resurgence in investment banking for both firms.

Amazon was up slightly as the commerce giant launched Prime Day, its annual two-day promotional event. Prime Day, which started nine years ago, was created to showcase the value of a Prime membership by providing special deals and benefits for members.

Meanwhile, gold prices also reached an all-time high last night after lifting by +2% to trade around $2,467 an ounce, driven by growing confidence in upcoming rate cuts.

Gold has soared by 20% since the beginning of the year, as significant purchases by central banks and rising demand for the precious metal in China contributing to its rise.

Elsewhere, the US Securities and Exchange Commission (SEC) has informed asset managers that the first US exchange-traded spot ether ETFs could launch next week.

The Ethereum price declined by around 1% in the past 24 hours to US$3,424.

US small caps on the rise

Over the last four sessions, the small-cap Russell 2000 index has outperformed the Nasdaq 100 by nearly 12%, a feat unmatched since 2011.

This means that Wall Street has continued to see money shift from megacap “safety” stocks to small caps.

“Rotation is the name of the game,” said Andrew Brenner at NatAlliance Securities told Bloomberg. “This is consistent with the increased perception of cutting rates.”

However, some analysts suggest that it’s premature to conclude if a sustainable rotation into small caps can be maintained.

The earnings season will be a “key test” in determining the sustainability of this trade.

“For the moment, small caps have the better momentum because money managers cannot afford to stay as underweight as they have been forced to be over the last 18 months,” said Nicholas Colas at DataTrek Research.

In other markets …

Gold price rose by around 2% to US$2,4269 an ounce.

Oil prices were down 1.4%, with Brent crude now trading at US$83.84 a barrel.

The benchmark 10-year US Treasury yield ticked lower by 7 basis points (bond prices higher) to 4.16%.

The Aussie dollar slipped further by 0.45% to 67.34 cents.

The iron ore price also slipped by 1.6% to US$107.15 a tonne.

Bitcoin meanwhile traded flattish in the last 24 hours to US$64,377, while Ethereum eased by 1% to US$3,424.

5 ASX small caps to watch today

Swift Networks (ASX:SW1)
Swift has announced a contract renewal to provide around-the-clock technical support and entertainment services for 12 months at three Chevron sites. These include Chevron’s Gorgon Butler Park, Wheatstone Onshore, and Wheatstone Offshore facilities, under an agreement signed with Compass Group. The contract is valued at $2.1 million for the year.

DevEx Resources (ASX:DEV)
A significant drilling campaign is underway near the historical Nabarlek Uranium Mine, focusing on high-grade uranium discoveries. Recent drilling 2 kilometers north of the mine at Nabarlek North has revealed substantial uranium mineralization along the Nabarlek Fault Corridor. One notable find includes a 7.5-meter intercept with 1,821 parts per million (ppm) equivalent uranium (eU3O8) from a depth of 133.4 meters (hole NBRC239). DEV says these promising results have prompted plans for further exploration drilling in the coming month.

Riversgold (ASX:RGL)
Recent drilling at the Northern Zone Gold Project has significantly expanded the potential gold resources. By drilling 27 aircore (AC) holes, the project successfully doubled the size of its targeted gold zone by reaching basement geology. This drilling campaign focused on transitioning from the oxide zone to fresh rock layers, aiming to extend the mineralised porphyry footprint, which remains open for further exploration. Riversgold, fully funded for future operations, plans to conduct more targeted drilling to explore this expanded footprint scheduled to begin in mid-August.

Somerset Minerals (ASX:SMM)
An ongoing airborne geophysical survey has pinpointed significant gravity anomalies at the Miguel prospect on Somerset Island, situated 29 kilometers from American West’s Storm deposit. The survey has identified a large 4-kilometer north-south gravity anomaly, lacking a magnetic response, suggesting potential associations with sedimentary-hosted copper deposits or Mississippi Valley-type deposits. Some parts of this gravity anomaly overlap with a multispectral anomaly, displaying a reflective signature akin to other known mineral deposits in the region.

Chilwa Minerals (ASX:CHW)
In initial assessments at Mposa, the first 50 sonic drillholes that returned significant mineral sands assays have also revealed anomalous rare earths results from preliminary composite sampling of the heavy mineral concentrates (HMC). This initial Rare Earth Element (REE) analysis served as an initial step to explore the potential presence of REEs in the HMC. However, the analysis did not cover the entire spectrum of REEs, including heavy rare earths, nor did it assess the potential of REEs in the coarse or fines fractions. Follow-up analysis is currently ongoing to investigate these aspects and to gain a deeper understanding of the mineralogy and distribution of REEs in the Mposa heavy mineral sands (HMS) deposit.

At Stockhead we tell it like it is. While Riversgold is a Stockhead advertiser, it did not sponsor this article.