Stocks experienced a significant surge on Wednesday, propelled by the latest consumer price index (CPI) report indicating a slower-than-anticipated core inflation rate for December. This positive economic news, coupled with strong quarterly earnings reports from major U.S. banks, fueled the market rally. The Dow Jones Industrial Average jumped 703.27 points, a 1.65% increase, closing at 43,221.55. The S&P 500 climbed 1.83% to reach 5,949.91, while the Nasdaq Composite saw a robust 2.45% rally, closing at 19,511.23. This marked the most substantial single-day gain for all three major averages since November 6th.
December’s CPI report, released by the Bureau of Labor Statistics, revealed that core inflation, excluding volatile food and energy prices, rose by 3.2%. This figure represents a slight decrease from the previous month and falls below the 3.3% estimate projected by economists surveyed by Dow Jones. Headline inflation, encompassing all items, increased by 2.9% year-over-year, aligning with market forecasts.
The encouraging inflation data suggests a potential easing of inflationary pressures, boosting investor confidence. John Kerschner, head of U.S. securitized products and portfolio manager at Janus Henderson Investors, noted the market’s positive reaction to consecutive inflation gauges, including the Producer Price Index (PPI) and the CPI, coming in below expectations. He emphasized the significance of the CPI numbers in potentially precluding further interest rate hikes, which some market participants had prematurely factored into their projections.
The 10-year Treasury yield experienced a sharp decline following the CPI report, dropping approximately 13 basis points to around 4.65%. Growth stocks, notably Tesla and Nvidia, reacted positively to the falling Treasury yields, with Tesla surging around 8% and Nvidia gaining approximately 3%.
The fourth-quarter earnings season commenced on a positive note, with major banks exceeding market expectations. JPMorgan Chase shares rose nearly 2% after the bank announced earnings per share (EPS) and revenue that surpassed projections, driven by robust performance in fixed-income trading and investment banking.
Goldman Sachs shares saw a 6% increase after reporting a positive earnings surprise, exceeding both top and bottom-line estimates. Wells Fargo shares also experienced a significant jump of over 6% following the bank’s projection of a 1% to 3% increase in net interest income for 2025. Citigroup further contributed to the positive sentiment, with its shares gaining 6% after exceeding fourth-quarter earnings estimates.
Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, highlighted the importance of the strong bank earnings, emphasizing the financial sector’s close ties to the overall economy. He suggested that the bullish performance of these major banks serves as a positive indicator for the broader market outlook.
