Thursday was a historically strange day in the stock market. That may be good news

Wall Street experienced a dramatic shift on Thursday, with winning and losing stocks swapping places. This rare event could help the rally continue.

The Russell 2000 small-cap index jumped more than 3%, while every stock in the Magnificent Seven fell. Nvidia dropped over 5% and Apple fell 2.3%, dragging down the S&P 500 and Nasdaq Composite.

Bespoke Investment Group noted it was just the second day since 1979 where the Russell 2000 rose more than 3% while the S&P 500 declined. The Nasdaq underperformed the Russell 2000 by over 5 percentage points, a record gap.

Ed Yardeni of Yardeni Research said this rotation might not pull the S&P 500 down. He expects gains in the S&P 493, small-, and mid-cap stocks.

The split followed a June consumer price index report showing headline inflation declined, raising hopes for Federal Reserve rate cuts by September.

Sam Stovall of CFRA Research observed investors jumping from large-cap tech to mid- and small-cap stocks and real estate. This rotation followed signs that the Fed might cut rates without reacting to a recession.

Ross Mayfield of Baird noted positive CPI and dovish Powell comments, with bond yields dropping. This rotation could look negative due to the market's concentration in Big Tech.

Signs of a softening U.S. economy suggest a slow growth or recessionary environment, challenging for economically sensitive small-cap stocks.