Investnet Global Chief Market strategist Kristina Hooper believes that equity markets are waiting for the fed to officially signal the end of its rate hike cycle. Speaking on Bloomberg's The Close, Hooper added that she expects smaller caps and cyclical stocks to lead the next rally.

We are entering into a post fed world. And that could very well be one of if not the only catalyst to move stocks higher. I certainly think there is going to be a period of digestion. We can't have the kind of gains we had without some kind of period of, of digestion, especially given the um uh the what I would call a mediocre earnings season. And so I, I think what is likely to drive stocks higher is the end of the fed rate hikes. But that means markets have to realize that it's the end. I think we've already hit the end. Um, but that has to be communicated by the fed and that will take a little time. But also, um markets have to start discounting an economic recovery next year. And I think that will happen. And so that means that smaller cap and cyclical stocks will likely lead the next rally.