The numbers keep pouring in, and, for the small- and mid-cap stocks in particular, business is pretty good. The broader market is reacting well to second quarter earnings, and investor sentiment is improving.

Factory orders are improving, incomes are improving (which means that consumer spending is improving), and technology spending is improving, as well. This economy is turning out an impressive performance in the face of higher interest rates and higher oil prices. This is why the small- and mid-cap companies are doing so well--the domestic economy may be much stronger than we think!

One of my favorite companies in the eye care industry reported solid financial results for its second quarter. IntraLase Corp., which is a company that makes lasers for use in LASIK laser eye surgery, generated revenue growth of 45% in the second quarter, and saw its gross margin expand to 52.4% from 39.8% in the comparable quarter. The eye care industry continues to boast excellent long-term investment prospects. It isn't an exciting industry, but you can't argue with the numbers.

Another innovative company that's doing well is Evergreen Solar Inc. This company came to my attention as part of my interest in finding alternative or new energy investment opportunities in the stock market. The company saw its product revenues rise 135% to $10.7 million in the second quarter, and it achieved positive gross margins and significantly improved its net loss. The stock market continues to allocate new investment capital to new energy companies.

The small-cap sector of the stock market is alive and well, and the real driver of these businesses is innovation. Entrepreneurialism is pervasive in smaller companies, and when you combine hard work with technological progress, you often get real innovation. Regardless of what the broader stock market does for the remainder of this year, it's an exciting time for small companies in this economy.