Stocks closed higher across the board with the small-cap Russell 2000 soaring by another 3.50% yesterday. That was followed by the mid-cap S&P 400 with a gain of 2.50%, and the Dow with a gain of 1.85%. The S&P 500 and Nasdaq were up a more modest 0.64% and 0.20% respectively.

The market rotation trade continues. The small-caps, which were actually down for the year by -0.02% just 2 weeks ago, is now up 11.7% YTD. The rotation trade is also lifting the mid-caps, which are now up 12.0% YTD (the mid-caps were up 4.11% 2 weeks ago), while the Dow is up 8.66% YTD.

The S&P and Nasdaq are still well ahead of the pack with gains of 18.8% and 23.3%. But the huge performance disparity has shrunk.

As I mentioned yesterday, I actually see this as part market rotation, and 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.

In other news, Retail Sales were flat (0.0%) m/m. But last month's change was revised up to 0.3% from 0.1%, while the consensus was calling for -0.3%. Ex-Vehicles it was up 0.4% vs. last month's upwardly revised 0.1% (from -0.1%), and views for 0.1%. Ex-Vehicles & Gas it was up 0.8% vs. last month's upwardly revised 0.3% (from 0.1%), and estimates for 0.1%.

The Housing Market Index slipped to 42 vs. last month's 43 and expectations for the same.

The Import and Export Prices report showed Import Prices were flat (0.0%) m/m. But an improvement from last month's -0.2% and the consensus for -0.1%. On a y/y basis they were up 1.6% vs. last month's 1.4% pace and views for 1.2%. Export Prices, however, were down -0.5% m/m vs. last month's -0.7% and estimates for -0.1%. But on a y/y basis it was up 0.7% vs. last month's 0.5%.

And Business Inventories were up 0.5% m/m vs. last month's 0.3% and estimates for 0.4%.

Today we'll get MBA Mortgage Applications, the Housing Starts and Permits report, Industrial Production, the Atlanta Fed Business Inflation Expectations, and the Beige Book.

We'll also hear from Fed policymakers Thomas Barkin and Christopher Waller as they speak at their engagements throughout the day.

And we'll get more earnings with ASML Holding, Johnson & Johnson, and U.S. Bancorp reporting before the open, with Crown Castle, Discover Financial, and Steel Dynamics going after the close.

And of course, we'll see if the rotation trade continues for yet another day.

Whether it does today, specifically, or not – I'm expecting the overlooked and underinvested small-caps in particular, and other stocks which have been ignored for much of the year, to continue to shine for a while.

See you tomorrow,