Market Momentum Shifts as Inflation Fears Ease
A significant turnaround in market sentiment occurred on Wednesday, driven by promising bank earnings and a crucial consumer inflation update that showed prices increasing less than expected in December. The S&P 500 and the Dow Jones Industrial Average surged over 1.4%, while the tech-heavy Nasdaq Composite jumped more than 1.7%.
Inflation Update Brings Relief
The Consumer Price Index (CPI) revealed that prices rose 0.2% over the prior month on a “core” basis, which excludes food and gas costs. This marks a deceleration from November’s 0.3% monthly gain and a 3.2% annual increase, the first decline since July. The 10-year Treasury yield dropped more than 12 basis points to 4.66% following the cooler-than-expected inflation reading.
Bank Earnings Boost Market Confidence
Wall Street banks reported surging profits, driven by a dealmaking revival and investment banking strength. JPMorgan Chase delivered a second straight year of record annual profit, with a 50% jump in fourth-quarter net income. Its stock rose 1% before the bell. BlackRock’s quarterly profit jumped over 20% as assets hit a record $11.6 trillion, causing its stock to pop. Goldman Sachs, Wells Fargo, and BNY shares also gained after the banks booked bumper quarters.
Broad-Based Rally Takes Hold
All eleven sectors were in the green, with interest rate-sensitive sectors such as Real Estate and Utilities leading the charge. Five sectors outperformed the S&P 500’s 1.3% gain. The recent headwind for stocks, the 10-year Treasury yield, reversed on Wednesday morning, dropping more than 12 basis points to 4.66%.
Economic Data and Earnings Roundup
In addition to the CPI reading, other notable economic data releases included MBA Mortgage Applications and Real average hourly earnings. Earnings reports from BlackRock, BNY, Citi, JPMorgan Chase, Synovus, Wells Fargo, and Goldman Sachs also made headlines.
Global Risks and Opportunities
Ahead of the World Economic Forum in Davos, Switzerland, the annual global risk report highlighted state-based armed conflict as the top risk. Other top risks include misinformation and disinformation, extreme weather events, societal polarization, cyber-espionage, and warfare. As market leaders prepare to gather in Davos, the focus will shift to finding ways to foster collaboration and resilience in the face of these compounding vulnerabilities.
Leave a Reply