Since the start of the bull market in October 2022, stocks' move higher has largely been about artificial intelligence and the outperformance of a few large equities, driving investor concern that gains aren't widespread enough for the rally to continue.

That could be changing.

Thursday's better-than-expected inflation reading has sent the stock market into a tizzy in recent trading days. As investors have rapidly priced in higher chances of an interest rate cut from the Federal Reserve in September, the most loved areas of the market of the past year have underperformed as investors rotate into sectors outside of tech.

The Roundhill Magnificent Seven ETF, which tracks the group of large tech stocks that led the 2023 stock market rally, is down more than 1.5% in the past five days. Meanwhile, Real Estate (XLRE) and Financials (XLF), both interest rate-sensitive sectors, have been the market's biggest winners over the same time period. The small-cap Russell 2000 (RUT) index is up more than 7% and finally breached its 2022 high for the first time during the current bull market.

In another sign that a wide swath of stocks are rallying, the equal-weight S&P 500 (^SPXEW), which ranks all stocks in the index equally and isn't overly influenced by the size of the stocks moving higher or lower, has outperformed the traditional market cap-weighted S&P 500.

Ritholtz Wealth Management chief market strategist Callie Cox told Yahoo Finance the market action as of late has been "refreshing" and could be the sign of a maturing bull market, where a wide range of stocks are contributing to the rally, providing more support for stock indexes at record levels.

"If this trade continues, if the prospect for a rate cut is still in play for this fall, then we could finally see the bull wake up, and that's good news for all investors," Cox said.

It's not the first time strategists have been optimistic about market rotations like the one currently happening. Other spurts of widespread rallies were celebrated in December 2023 and during the first quarter of this year.

The question is whether a big broadening of stock market gains is finally underway this time, or if this is yet another head fake as the market becomes overly optimistic about Fed rate cuts.

"The conviction level that we have is higher right now than back in December [during the Fed pivot-driven market rally]," Bank of America Securities senior equity strategist Ohsung Kwon told Yahoo Finance.

Kwon notes that the narrative driving the rally — hopes of a soft landing and gradual interest rate cuts from the Fed — is largely unchanged from the prior broadening spurts. But this time, he said, "the earnings backdrop is really supporting this rotation as well."

Bank of America's earnings analysis shows the 493 stocks not including the Big Tech "Magnificent Seven" are expected to grow earnings year over year for the first time since 2022 during the current reporting period. As seen in the chart below from JPMorgan Asset Management's midyear outlook in June, the earnings growth of those stocks is expected to pick up in the coming quarters, while Big Tech is expected to see its earnings growth slow.

Given that earnings are typically the key driver of stock prices, this would support the theory of a broadening rally. But the key caveat is that these are just expectations. And given the market's struggle thus far this year to produce a wide array of winners, some strategists want to see actual earnings growth to confirm the narrative that's currently seen in the estimates.

"I want to see earnings growth come from more sectors than just tech," Cox said. "I think that that's the big theme of this, of this particular season. You know, seeing how many sectors can actually pitch in and move the S&P 500's profit expectations higher."

The same could be said for the other narrative backing the recent rotation. Markets are now pricing in a more than 90% chance the Fed cuts interest rates in September, per the CME FedWatch tool. But again, Cox is wary of declaring the broadening will certainly continue.

"Until we're officially in that rate cut cycle, it's hard to say that this broadening trade is here to stay," Cox said. "I hope it is. I'm optimistic it is, but you're still going to have a market that's hanging on every piece of economic data that comes across the tape."

Charles Schwab senior investment strategist Kevin Gordon is also cautious about declaring the big broadening has arrived. Gordon noted "more clarity" on the Fed's cutting cycle and why it would start cutting remains paramount, particularly for the most interest rate-sensitive areas of the market like small caps.

Gordon reasoned the recent market action has been a "great step in the right direction." But a broad rally won't come overnight, Gordon said. He added, "The nature has been for everybody to say that it's this great rotation, but great rotations tend to take a little bit longer than a couple of days."

And even if that rotation slowly occurs, recent index performance shows that will mean a different, slower path higher for the S&P 500 too. The S&P 500 closed down last Thursday despite the release of a promising June inflation report as investors moved out of the large tech stocks, which hold bigger weightings in the index than smaller stocks.

"We could see a little bit of this churn where some stocks are passing the baton to other stocks," Cox said. "Tech stocks are passing the baton to other stocks. Sure, we may not see prices move up as quickly as they have. But this is the kind of movement that strengthens the foundation of a bull. It means that this rally can be stronger and live longer eventually."

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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