In a surprising shift in the stock market, sectors outside of the Big Tech behemoths are showing signs of a bullish resurgence. Traders are growing increasingly confident about imminent interest-rate cuts, fueling hopes for another leg of the bull run. The equal-weighted version of the S&P 500 has recently outperformed the benchmark index, marking its strongest two-week performance relative to the S&P 500 since November 2020.

This notable turnaround for the equal-weighted index, which has lagged behind the benchmark for months, comes as optimism over future monetary easing prompts investors to shift away from the perceived safety of Big Tech stocks. Todd Sohn, managing director of ETF and technical strategy at Strategas Securities, believes this trend indicates other sectors of the stock market "finally stepping up" and catching up to the rally.

Amidst the S&P 500 and Nasdaq 100 posting their worst weeks since April, investors are now questioning the sustainability of the rebound in battered stock groups. They are also speculating on the performance of these groups when the Federal Reserve eventually implements rate cuts. In previous cycles, interest-rate reductions have often led to strong stock market returns, particularly benefiting rate-sensitive sectors such as utilities, staple goods, and healthcare.

While the S&P 500 has been consistently reaching new highs over the past few months, concerns arose on Wall Street about the limited participation of stocks outside the technology giants. To highlight this top-heaviness, data compiled by Bloomberg reveals that since the start of the bull market 21 months ago, the S&P 500 has gained 54%, while its equal-weighted counterpart has only increased by 31%. Typically, during previous bull-market runs, the equal-weighted index has outperformed the cap-weighted benchmark by an average of 15 percentage points.

Despite this, fund managers are beginning to increase exposure to sectors beyond tech megacaps. Small-cap stocks recently experienced their second-largest inflow ever, with $9.9 billion pouring in during the past week, according to data from EPFR Global and Bank of America. Renowned stock strategist Jim Paulsen predicts that these non-tech companies will drive the next phase of the bull market.

It remains to be seen if this trend will continue, as certain technical indicators suggest potential overextension. Last week, the S&P 500 traded 15% higher than its 200-day moving average, a discrepancy that has historically preceded losses in 2011, 2015, and 2018. As the S&P 500 exits its best two-week stretch of the year, it now faces the challenging months of August and September.

Moving forward, key catalysts to watch out for include upcoming tech earnings reports, the US government's first reading on second-quarter gross domestic product (GDP), scheduled for Thursday, and the Federal Reserve's preferred measure of inflation, due Friday. These events may provide insights into the rate outlook and subsequently impact the direction of stocks. The consensus expectation is for sturdy economic growth, with the Atlanta Fed's GDPNow model forecasting second-quarter real GDP growth to rise to a 2.7% annual rate.

As investors brace themselves for potential rotations in the market, portfolio managers like Julie Biel from Kayne Anderson Rudnick emphasize the importance of staying ahead of changes. Profiting from shifts in market rotation can greatly benefit portfolio performance, especially if caught early.

In conclusion, the recent surge in small-cap stocks and sectors outside of Big Tech indicates the possibility of another bull run. Traders' confidence in upcoming interest-rate cuts has prompted a shift in investment focus, away from the safety of tech giants. As the market prepares for further economic indicators and earnings reports, the next phase of the bull market hangs in the balance.