Market Wrap / defence deals

Key points:

Gold and defence stocks outperformed; banks and healthcare stocks lagged S&P index rebalance drives short-term rallies, but fundamentals remain keyDalrymple Bay Infrastructure (ASX:DBI) highlighted for yield potential AI and rare earth thematics support opportunities in mid- and small-cap stocks

The local market endured a negative session, influenced by several stocks going ex-dividend and significant movements within bank shares. Gold stocks held firm, benefitting from optimistic forecasts with Goldman Sachs and ANZ projecting substantial gains for gold prices. Notable performances came from Evolution Mining (ASX:EVN) and Northern Star (ASX:NST), each advancing around 4%. In contrast, health care names such as CSL (ASX:CSL), Sonic Healthcare (ASX:SHL), and Ansell (ASX:ANN) faced pressure, with losses of up to 3%. Defence contractors surged, as Service Stream (ASX:SSM) hit a five-year high after winning a $1.1 billion contract, Downer EDI (ASX:DOW) gained 3% with a $3 billion deal, and Ventia (ASX:VNT) jumped on contract news.

Jimmy Zhang of Geba Capital notes the September S&P index rebalance, with Robinhood and Amkor joining the S&P 500. Index changes can spur short-term rallies, but Zhang stresses that over ten years, newly added stocks outperform initially before lagging, highlighting the necessity of strong fundamentals. Dalrymple Bay Infrastructure (ASX:DBI) also stands out, set for ASX 200 inclusion following a sizeable block trade, with attractive yield features compared to BHP (ASX:BHP) and Telstra (ASX:TLS).

Zhang points to the potential for mid- and small-cap AI and rare earth companies, including opportunities in Chinese AI firms, as benefiting from thematic trends and government investment.