The Russell 2000 (^RUT) small-cap index has reached its highest level in three years, signaling a clear shift in market dynamics. MarketGauge.com chief strategist Michele Schneider joins Yahoo Finance's Morning Brief to share her insights on this market (^DJI, ^IXIC, ^GSPC) rotation and overall outlook.

Schneider attributes the broadening market to investor sentiment around interest rates, suggesting that many believe "rates at least have peaked and will actually go down." While markets are hovering near all-time highs, she cautions investors to "be wary" of future interest rate trends — noting that October is historically a volatile month for markets.

"We may need a little bit more patience," Schneider told Yahoo Finance, "to really see if this is a sustainable broadening. Certainly, it is a bullish season after two years of a bull market. By the third year, it generally goes up. We're optimistic, but we're not flying into everything yet."

Regarding investment opportunities, Schneider highlights retail companies like Ulta Beauty (ULTA) and e.l.f. Beauty (ELF), as well as pharmaceutical giant Novo Nordisk (NVO). She describes these stocks as relatively "cheap," potentially offering attractive entry points for investors. In the tech sector (XLK), Schneider points to ASML Holding (ASML) as a promising option, noting that investors "cannot deny that that [the tech sector] is a growing field."

To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.

This post was written by Angel Smith