Stocks soared yesterday. The S&P 500 and Nasdaq both made new all-time highs with gains in excess of 1%. But it was the small-cap Russell 2000 that that led the way with an outsized gain of 2.99%.

Relief at yesterday's Consumer Price Index (CPI ? retail inflation) report helped lift stocks. It showed headline inflation up 0.2% m/m vs. last month's 0.3% pace and views for 0.2%. The y/y rate came in better-than-expected at 2.7%, in line with last month and under the consensus for 2.8%. The core rate (ex-food & energy) was up 0.3% m/m, up a bit from last month's 0.2% pace, but in line with estimates for 0.3%. The y/y rate came in at 3.1%, up from last month's 2.9% and the consensus for 3.0%.

But the report was cheered, as it showed only a modest tick up. Not the elevated increase that the Fed has been worrying about since the beginning of the year. In fact, the annual core rate at 3.1%, while up a bit over the last couple of months, is actually down from the 3.2% rate we ended 2024 at.

The moderate inflation readings are increasing the chances that the Fed resumes their interest rate cuts sooner rather than later. With the Fed still forecasting 2 cuts this year (presumably by 25 basis points each), and only 3 FOMC meetings remaining this year (September, October and December), it would appear these cuts are just around the corner.

And the markets, especially the small-caps, are not wasting any time in starting to price that in. Especially, since they usually borrow at less favorable terms than larger companies. So interest rate cuts will definitely have a favorable impact on small-caps. Small-caps have lagged for a while. But they may finally see their long-awaited breakout this year.

On Thursday we'll get another look at inflation with the Producer Price Index (PPI ? wholesale inflation).

In addition to yesterday's CPI report, we also got the NFIB Small Business Optimism Index. That came in at 100.3, up from last month's 98.6, and beating views for 98.9.

Today we'll get MBA Mortgage Applications. And we'll hear from Fed policymakers Thomas Barkin, Austan Goolsbee and Raphael Bostic.

Earnings season continues.

We heard from Sea Limited yesterday before the open and they posted a negative EPS surprise of -14.1%, and a positive sales surprise of 4.67%. That equated to a quarterly EPS growth rate of 84.8% vs. this time last year, and a sales growth of 37.2%. They were up 19.07% yesterday.

Tencent Music reported before the open as well and posted a positive EPS surprise of 15.0% and a positive sales surprise of 6.93%. They were up 11.85% yesterday.

After the close we heard from CoreWeave. They reported a negative EPS surprise of -17.4%, and a positive sales surprise of 12.5%. In spite of the negative surprise, they improved their results by losing only -60 cents per share vs. a loss of -$1.62 last year. Revenue rose 206% to $1.213 billion. They were up 6.42% in the regular session before earnings. But were trading lower by -11% in after-hours following earnings. Note, their lockup period from their recent IPO (3/28) ends on Thursday.

Today we'll hear from another 478 companies on deck to report, including Cisco Systems, Elbit Systems and Performance Food Group.

And we'll see if the markets can add to their gains today after yesterday's rally.

See you tomorrow,