Group 1: Small-Cap Market Dynamics - The small-cap benchmark, tracked by the iShares Russell 2000 ETF, has reached record highs this month, outperforming large-cap indices, indicating a potential shift in market leadership [1][2] - The macro and fundamental case for U.S. small caps remains strong, supported by long-term structural forces rather than short-term positioning [2] - Small-cap earnings revisions are outpacing historical norms and those of mid- and large-cap stocks, suggesting a robust growth outlook inconsistent with a late-cycle slowdown [5] Group 2: Productivity and Financial Conditions - Strong productivity growth allows for above-trend growth without causing inflation, enabling the Federal Reserve to maintain easy financial conditions [3] - The current market environment allows for a focus on labor market and services inflation data as key determinants of policy risk, with geopolitical volatility being treated as opportunities to add risk [4] Group 3: Regional Banks and Financial Fundamentals - Regional banks have shown solid fundamentals this quarter, contributing positively to small-cap performance, with attractive relative valuations [7] - There has been a notable absence of discussions about credit health during earnings calls, indicating a stable outlook for regional banks [8] Group 4: Artificial Intelligence Adoption - The adoption of artificial intelligence is expected to be a significant catalyst for small caps, particularly as it expands beyond software into physical products [9] - The integration of AI into physical products is anticipated to be a major investment theme in 2026, with sectors like power providers, semiconductors, and tech hardware being primary beneficiaries [10] - AI adoption could help small caps close margin gaps that have historically favored large caps, indicating a potential for re-rating in the small-cap sector [11]

Core Viewpoint - The potential for a small-cap rally is supported by anticipated Fed rate cuts and a positive earnings cycle, which could benefit the Calamos Timpani Small Cap Growth fund [1] Group 1 - Fed rate cuts are expected to create a favorable environment for small-cap stocks [1] - A positive earnings cycle is emerging, which may further enhance the performance of small-cap companies [1] - The Calamos Timpani Small Cap Growth fund is positioned to take advantage of these market conditions [1]