Stocks closed higher yesterday to kick off the week. And the market rotation continued with the small-cap Russell 2000 leading the way with an outsized gain of 1.80%.

Fed Chair Jerome Powell spoke yesterday at the Economic Club in Washington, D.C., and said "the U.S. economy has performed really remarkably well over the last couple of years."

While commenting on the progress made on inflation, and when the Fed might cut rates, he acknowledged that "if you wait until inflation gets all the way down to 2%, you've probably waited too long, because the tightening that you're doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%."

He reiterated the Fed's position that they'd like to see more confidence that inflation, indeed, is on a sustainable path toward 2%. He followed that up by saying, "what increases that confidence in that is more good inflation data, and lately here we have been getting some of that."

While the Fed is still forecasting one rate cut by year's end, many are now speculating that we could see two rate cuts this year.

While nobody is expecting a rate cut when the Fed meets on July 30-31, the odds are increasing that we could see the first cut in September, leaving November and December as options as well.

In other news, yesterday's Empire State Manufacturing Index slipped to -6.6 vs. last month's -6.0 and views for the same.

Today we'll get Retail Sales, Import and Export Prices, Business Inventories, and the Housing Market Index.

We'll also get more earnings with UnitedHealth Group, Bank of America, Morgan Stanley, and Charles Schwab reporting before the open, with J.B. Hunt Transport going after the close.

We'll also see if the market rotation continues.

Note, I actually see this as part market rotation, part breadth expansion. I don't see a reason to get rid of large-caps, or the big-tech AI names that have been driving the market. The AI boom is here to stay. And it's likely a multi-year boom, if not longer.

But, after the monster gains we've seen so far, the likelihood of a soft landing, and the prospect of rate cuts coming in just a couple of months, it looks like the bull market is entering a new phase – potentially diversifying from the overly-crowded and overly-concentrated big-tech/AI dominated trade, to including many more stocks and many more industries.

And I expect many of the well-deserving, but overlooked and ignored stocks, to start getting the attention and investment dollars they deserve.

This should lead to a new leg up not just for small-caps, but for all market-cap sizes.

See you tomorrow,