The Dow Jones Industrial Average surged more than 700 points on Wednesday, marking its best day since November. The S&P 500 climbed 1.83% and the Nasdaq Composite rallied 2.45%. The gains came after a report showed core inflation unexpectedly slowed in December.
The consumer price index revealed that core inflation, excluding food and energy, rose 3.2% in December. This was slightly down from the previous month and lower than the 3.3% estimated by economists. Headline inflation increased by 2.9% on a 12-month basis, aligning with forecasts.
“The market [is] breathing a sigh of relief as back-to-back inflation gauges, PPI yesterday and CPI this morning, came in slightly below expectations,” said John Kerschner, head of U.S. securitized products at Janus Henderson Investors. “Perhaps most importantly, today’s CPI number takes additional rate hikes off the table, which some market participants were beginning to prematurely price in.”
Treasury yields dropped sharply on the back of the CPI report, with the 10-year Treasury yield falling roughly 13 basis points to about 4.65%. Growth stocks, such as Tesla, saw gains as Treasury yields dove.
The fourth-quarter earnings season also got off to a positive start Wednesday, with big banks broadly beating Wall Street’s expectations. JPMorgan Chase shares rose nearly 2% after the bank beat earnings per share and revenue estimates. Bank of America’s stock popped 6% after reporting a top- and bottom-line beat.
Goldman Sachs shares jumped more than 6% following a positive forecast for net interest income in 2025.
Wall Street gains on lower inflation
Citigroup shares gained 6% after exceeding fourth-quarter estimates.
“We got a good start today to earnings season. The bank earnings are key because the financial sector is so tied to the general economy. So for these big banks to put up bullish numbers today, I think it does bode well,” said Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report.
In other news, shares of FTAI Aviation plunged as much as 40% on Wednesday after a report from Muddy Waters criticized the company’s accounting techniques. Muddy Waters accused FTAI of highly misleading financial reporting, stating that revenue from true maintenance and off-the-rack module sales are materially lower than reported. The Fed’s latest Beige Book update showed that economic activity ticked up over the past seven weeks, as did hiring and prices.
The Fed characterized growth as “slightly to moderately” up across its 12 districts. The labor market saw a “slight increase” in hiring in half the Fed districts, while the rest remained flat. Inflation rose “modestly” overall.
Oil prices reached levels not seen since August, with West Texas Intermediate crude hitting $80.04 per barrel and Brent crude rising as high as $81.90. Energy stocks rallied in tandem. UBS warned that the bumpy ride for stocks in 2025 may not be over yet.
We expect stock volatility to persist in the coming weeks and months as investors react to incoming data and policy news amid rate uncertainty,” the firm wrote in a note to clients.
