Small-cap stocks celebrated their third consecutive week of gains, driven by growing investor optimism towards interest rate-sensitive industries and companies, bolstered by firm expectations of a Federal Reserve rate cut in September.

Markets are currently pricing in a 100% likelihood of a Fed rate cut in less than two months, and are factoring in nearly three rate cuts by year-end, according to CME Group's FedWatch tool.

This optimism is further strengthened by the absence of fears regarding an imminent economic slowdown, creating a landscape particularly favorable for small-cap stocks.

Economic data released this week revealed that...