Disinflating CPI Broadens Market Rally As Investors Rotate To SMidCaps

This morning, we weren't surprised by June's lower-than-expected CPI report. It does increase the odds of a cut in the federal funds rate (FFR) in September. That supports our expectation for the stock market rally to continue and broaden out from the Magnificent-7. Indeed, the Russell 2000 rose more than 3% this morning, while the S&P 500 and Nasdaq declined as investors rotated into SMidCap stocks. The latter have been weighed down by high interest rates and have remained relatively cheap when the Fed was tightening monetary policy (chart).