Australian tech, cyclical stocks set to outperform as Fed eases: Macquarie

Following a 0.25% Fed rate cut and anticipated further global easing, Macquarie forecasts Australian stocks, particularly technology, growth, and cyclical sectors, will outperform into year-end due to improved liquidity, reminiscent of the 1998 market. The firm favors stocks over bonds, cyclicals over defensives, and growth over value, recommending specific exposures like Nextdc and Seek for AI, Aristocrat Leisure for U.S. cyclical demand, and Northern Star Resources in gold, while expecting defensive sectors to lag.

Analysis

The U.S. Federal Reserve's recent 0.25% interest rate reduction, prompted by a softening labor market, is being interpreted as a key catalyst for a risk-on shift in Australian equities. According to analysis from Macquarie, this move, combined with recent RBA cuts, is expected to fuel a liquidity-driven market rally through year-end, mirroring the conditions of 1998 characterized by global easing and a technology sector boom. The firm advocates for a strategic rotation, favoring stocks over bonds, cyclicals over defensives, and growth over value. Specific recommendations highlight a clear thematic focus: technology and AI exposures such as Nextdc (ASX:NXT) and Seek Ltd (ASX:SEK); U.S.-exposed cyclicals poised to benefit from stronger demand, including Aristocrat Leisure Ltd (ASX:ALL) and Flight Centre (ASX:FLT); and gold miners like Northern Star Resources (ASX:NST) and Newmont (ASX:NEM), which remain a favored trade for safe-haven allocation. Conversely, defensive sectors like healthcare and staples are projected to underperform as investor risk appetite improves, with small-cap shares also expected to benefit from the improving sentiment.

Key Decisions for Investors

• Investors should consider re-evaluating defensive holdings in sectors like healthcare and staples, as they are projected to lag in a market driven by improving risk appetite and monetary easing.
• Consider increasing exposure to Australian growth stocks with a focus on the artificial intelligence theme, such as Nextdc and Seek, as well as cyclicals with significant U.S. revenue streams like Aristocrat Leisure and CAR Group.
• Maintain or establish positions in high-quality gold miners such as Newmont and Northern Star Resources, as they are viewed as well-positioned for continued investor inflows seeking safe-haven assets, even within a broader risk-on market.
• Monitor the Australian small-cap segment for potential outperformance, as improving risk appetite is expected to provide a tailwind for smaller companies that may have been previously overlooked.