Beaten Down Stocks Start to Bounce

Disclosure: This information is general in nature about speculative investments and does not constitute personal advice. It does not consider your objectives, financial situation, or needs.

Commentary: A very green week in small caps - unloved, beaten down stocks have been rising from July 1st. An update on the “6 key events” that could start a small cap market bull run before mid-July.

That was the greenest week we have seen in a while.

(many of the long term poor performers in our Portfolio and watchlist delivered quite the “post June 30 tax loss selling” price pop)

Last week we predicted that mid-July would bring the return of a bull market on the ASX...

We identified 6 different key events that could happen BEFORE mid-July that would help start off a bull market in small cap ASX stocks (read it here).

After 7 days... so far so good.

7 days to go.

Here is an update on these six “bull market supporting” events from the last 7 days:

1. There is recent interest in some areas of the small end of the market

We have observed some smaller precious metals and defence metals stocks delivering strong runs over the last 2 months - a good start for overall sentiment with the market seeing a few winners again.

🚨 UPDATE:

We continued to see some tiny stocks on delivery price rises this week, including when acquiring a new asset.

Here’s two random examples that we saw from the small cap market this week from stocks that we don’t hold and don’t intend to.

This week Santa Fe Minerals picked up a gold project - and post acquisition, popped by over 350% in one day.

As for defence metals - we saw Terra Uranium pick up an Australian tungsten asset and its share price went from ~2.5c to a high of ~4.5c on some pretty decent volumes.

Past performance is not an indicator of future performance, and there is no guarantee that stocks will continue to increase post-acquisition.

We are not shareholders in either of those companies and are not planning to be.

The point we are making is that unlike for most of the last ~3 years, there appears to be investor interest and buying when a new project is acquired by a company.

(we saw that with our Investment in RML 3 weeks ago - read our latest RML update here)

We also note that our Investment BPM is in trading halt pending a new acquisition. The trading halt announcement says it will be revealed on Monday (BPM trading halt announcement)....

2. June tax loss selling finishes July 1st

Tax loss selling pressure comes off small cap stocks, traditionally July is a positive month in the small end of the market.

🚨 UPDATE:

Regular readers and market watchers will have seen many years of “tax loss selling” as June 30 approaches, and the pop that sometimes happens on July 1st.

In the lead up to the end of the financial year on June 30th, many investors will sell stocks that are below their entry price to crystallise a tax loss.

Over the last ~24 months, most stocks in unloved macro thematics (like lithium/green energy metals) and many explorers had all been sold down to all time lows.

Many of those companies came into June tax loss selling season with already depressed share prices and in the last few weeks of June got sold down to a level where there generally wasn't many sellers left.

This week, on July 1st and the following couple of days we saw a lot of those companies in our Portfolio and watchlist start running.

Here are some that we saw in our Portfolio and some from our “Bottom Drawer Portfolio” that we still hold (see all our current holdings here):

• Noble Helium (ASX: NHE) - up from 0.9c to a high of ~3.6c per share (up 300%)
• Pursuit Minerals (ASX: PUR) - up from 3.5c to a high of ~7.1c per share (up 102%)
• Megado Minerals (ASX: MEG) - up from its 52 week lows at 0.75c to a 52-week high of 2.8c (up 273%).

The price runs were great to see, unfortunately for us we are still way underwater on these stocks from our Initial Entry Price - lets see what happens next.

The point is that there appears to be buying in a broader range of small stocks this week, not just the “popular” stocks in the market - a good sign for the return of the bull market.

3. Australia rate cut decision on July 8th

A rate cut puts more discretionary money into peoples pockets, and low rate environments are generally better for risk-on investing sentiment.

🚨 UPDATE:

This one we will get to find out on Tuesday - as small cap stock investors we are hoping for a rate cut to put investors in a risk-on mood.

The market might be already pricing in a cut if some media reports are to be believed. IF the RBA doesn't cut, it could spook the market in the short term.

4. US rate cuts coming?

Trump is making a lot of noise about wanting to see US rate cuts - and big ones, even going to the length of threatening to fire US Fed chairman Jerome Powell if he doesn't deliver deep cuts ASAP.

🚨 UPDATE:

A US rate cut would create a positive investor mood in the US, which generally rubs off on investors in countries like Australia.

This week Powell came out saying that July interest rate cuts were not “off the table” for the US Federal Reserve:

(Source)

Interestingly, he also mentioned that the Federal Reserve would have lowered interest rates already if it weren’t for Trump’s tariff policies:

(Source)

So Powell made two things clear, the Federal Reserve is ready to cut and already would have if it weren't for tariffs...

Which is important because Trump has set a soft deadline for tariff negotiations for July 9th and late on Friday there were reports that Trump would be sending letters out to some countries with simple flat line tariff rates.

So the Fed’s tariff uncertainty could soon be gone - which could open the door for those rate cuts Powell is saying he would have done already...

5. Multiple global trade deals to be announced by July 9th?

In April Trump announced bigger than expected tariffs on every country, and then gave them 90 days to cut a new trade deal. In about two weeks it will be the end of the “you have 90 days to do a new trade deal” tariff freeze, so we expect a few re-cut trade deals to be announced - the market generally likes global trade certainty – but in this case, it’s hard to predict because there will also be tariffs imposed.

🚨 UPDATE:

Certainty on trade terms is good for market sentiment, and vice versa.

As mentioned above, there are now five days left to go on Trump's July 9th deadline for countries to lock in a new trade deal with the US (which will still involve some, although hopefully lower, tariffs)...

Or face sweeping higher tariffs.

The point here is that certainty in global trade arrangements is generally positive for business, which generally extends to better sentiment for investors.

We could see a lot of it start from July 9th.

(But note – as we’ve mentioned, normally you don’t see horse trading on trade deals v tariffs – so outcomes for this are a bit harder to predict.)

As we said above - countries have until 9th of July to agree to a new trade deal:

Last week we saw a trade deal announced with Vietnam (Source).

The EU says they are close to a deal (Source).

The US says they are close to a deal with India... but not with Japan (Source).

There are too many countries to list but you get the point.

We expect to see more “certainty generating” trade deals this week before the Wednesday July 9th deadline.

So as we said above, certainty on trade terms is good for the market.

Alternatively the market wont like it if the trade deals don't come... or if the tariffs are still fairly high.

6. US President Trump’s “One Big Beautiful Bill” voted in by July 4th?

This is Trump's major bill that will lock in new budgets and laws to enact his vision for the USA.

🚨 UPDATE:

The Big Beautiful Bill was voted on, approved and is now law, unlocking all the money to implement the new US governments vision for the USA:

Today, at around 8:00am AEST, Trump signed the Big Beautiful Bill into law, which means approval for US tax cuts and additional spending

(and the Congressional Budget Office estimates that it will add US$3.4 Trillion to the ~US $37 Trillion US national debt...)

This new budget also unlocks a bunch of spending on US-based programs including some sectors that may benefit stocks in our Portfolio:

• Shipbuilding Supply Chains
• Defense Spending
• Critical Defense Metals
• Uranium and Nuclear Energy

Especially for projects and operations located in the USA, which is a key focus on Donald Trump's “America First” agenda.

Over the last 12 months we have weighted our Portfolio to ASX listed stocks with USA based projects, specifically in:

• Ship building supply chains (AL3),
• Critical defence metals (RML, SS1),
• Uranium (GUE, GTR),
• Lithium (PFE)
• And precious metals (JBY, SS1, HAR).

Here is a link to the section in last weekend's note about why these companies in our Portfolio might benefit from the Big Bill being passed.

These are the factors that we think could contribute to a positive run in small stocks after mid July (the “due dates” all occur in the first two weeks of July).

(And investors should note the risks of these investments also described in last weekend’s note).

So far so good on all fronts...

But wait, wont the Big Beautiful Bill’s tax cuts (less government revenue) and increased spending grow the US national debt?

Flow on effects of the Big Beautiful Bill passing - positive for gold.

The Big Beautiful Bill, is a “tax cuts and increased spending bill”.

This is obviously good for the companies and sectors that will benefit from the access to capital.

And good for people who now have to give less money to the government (tax cuts)

BUT...

A bigger budget deficit (spending higher than revenue) will just mean more pressure on the US dollar.

The bill also increases the US debt ceiling by $5 Trillion.

(we have written in the past how the US debt increasing is the biggest drive of the increase in the gold price versus the US dollar - generally good for gold stocks, but noting that gold stocks are also impacted by other factors, like operating costs, mining approvals, etc...)

Elon Musk has been vocal about his dislike of the Big Beautiful Bill increasing US deficit, after the work he did on reducing US government spending:

Unsurprisingly there were reports this week about how the USD was hitting multi-year lows versus other major currencies like the euro:

(Source)

All of this, in our opinion, will be positive for the gold price.

The price of gold doesn't actually “go up” technically.

The whole point is that gold’s purchasing power stays the same over time (safe haven assets) and the value of the US dollar falls.

It’s just the amount of US dollars or euros, or Aussie dollars it takes to buy an ounce of precious metal that changes over time.

So if gold’s purchasing power doesn’t go up - gold prices go up when the value of fiat currency goes down...

The more fiat currency printed by a government, the more cash there is in circulation - which means the value of existing currency falls...

We did a deep dive on this in a previous weekender which you can read here.

(Source)

Of course, future gold (and silver) prices are impossible to predict with any certainty, and its possible that gold (and silver) prices could go down.

Here are our gold (and silver) stocks - we include silver because silver generally follows gold prices:

• Producing gold right now (KAU)
• Advanced projects with existing resources (SS1, MTH, JBY, TTM)
• Projects that have previously produced gold (HAR)
• Earlier stage exploration projects (BPM, L1M)

Also, a special mention for our latest Investment Resolution Minerals (ASX:RML) which has exposure to:

• precious metals (gold and silver) - Increasing US debt good for gold
• as well as defence metals (tungsten and antimony) - Funding and incentives in the Big Beautiful Bill
• and its project is located in the USA and Funding Legislation now in place for America First Agenda

(a combination of three of our favourite macro thematics).

Precious metals with a military metals X factor, in the USA is one of the most popular thematics in the market right now.

Read our latest RML note here: Drilling early next month - Antimony, gold, silver, tungsten in USA next door to ~$2BN Perpetua Resources. Perpetua geologist joins RML...

Readers should note that the above stocks are all highly speculative investments and current prices may already reflect the news we’ve outlined in this article.

In addition, the above stocks all have additional risk factors that need to be considered, such as costs to mining, operational execution, processing the commodity and no guarantee that they will benefit from the USA Funding Legislation – all of which can affect their share price.

Have a great weekend,

Next Investors