ASX small-cap shares seem to be making a comeback as recent market trends indicate a positive shift. The S&P/ASX Small Ordinaries Index (ASX: XSO) has risen by nearly 1.3% in the past week, outperforming the large-cap S&P/ASX 200 Index (ASX: XJO), which is up around 0.7%. However, over the past 12 months, the ASX 200 has seen a greater increase of nearly 9% compared to the small-cap index’s 5% rise.
Small-cap shares are typically companies with a market capitalisation below $2 billion but above $100-200 million. Recent data suggests a rotation out of tech stocks and into small caps, both in the US and on the ASX, with the small-cap index showing more strength in the current market.
The US released June consumer price index (CPI) data, showing a core CPI of 3.3% year over year, below market expectations. This unexpected decline has led to speculation that the Federal Reserve might cut interest rates as early as September, which could benefit small-cap shares that are more vulnerable to interest rate rises.
Two small-cap shares that have seen significant gains include Droneshield (ASX: DRO) and Zip Co Ltd (ASX: ZIP). Droneshield’s counter-drone technology has attracted investor attention with a 647% increase in stock price in FY24, while Zip Co Ltd saw a 256% rise in its share price during the same period.
Overall, ASX small-cap shares are showing promise, driven by market shifts and strong company performances. It’s important to note that small-cap stocks can be more volatile, so conducting thorough due diligence is essential. DailyBubble believes that the current market trends indicate a potential rise in ASX small-cap shares, making them an attractive option for investors looking for growth opportunities.