Market Rally: Stocks Soar as Inflation Concerns Ease
Economic Optimism Boosts Stocks
The US stock market experienced a significant rally on Wednesday, driven by positive bank earnings reports 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 rose over 1.4%, while the tech-heavy Nasdaq Composite soared over 1.7%.
Inflation Update: A Step in the Right Direction
The Consumer Price Index (CPI) showed progress toward the Federal Reserve’s 2% inflation target in December. Prices climbed 0.2% month-on-month on a “core” basis, which strips out the more volatile costs of food and gas, an easing from November’s 0.3% gain. Over the last year, core CPI rose 3.2%. This marked the first move lower in core CPI since July, indicating a deceleration in price growth.
Treasury Yields Drop
The 10-year Treasury yield dropped over 12 basis points to trade around 4.66% after the cooler-than-expected reading. This easing of inflation concerns has reduced the pressure on the Federal Reserve to hike interest rates.
Bank Earnings: A Deal-Making Revival
Wall Street bank earnings reports brought surging profits thanks to a deal-making revival and investment banking strength. JPMorgan Chase delivered on optimistic analyst expectations with a second straight year of record profit, while Goldman Sachs profit beat estimates. BlackRock, Wells Fargo, and BNY also booked bumper quarters.
Economists Weigh In
Economists believe that the latest CPI data will not push the Federal Reserve to cut interest rates at its January meeting, but several see a path for rate cuts later in 2025. Citi economist Veronica Clark noted that markets have “overestimated the stickiness of inflation,” while Morgan Stanley chief US economist Michael Gapen wrote that weaker inflation should give the Fed more confidence that recent acceleration was just a bump.
Stock Market Rally: A Broad-Based Uptrend
A broad-based rally in stocks took hold at the open of Wednesday’s trading session on Wall Street. All 11 sectors were in the green, with interest-rate-sensitive sectors such as Real Estate and Utilities leading the charge. Five sectors were outperforming the S&P 500’s 1.3% gain.
What’s Next?
As the market looks ahead, investors will be keeping a close eye on economic data and earnings reports. The World Economic Forum in Davos, Switzerland, is also set to kick off next Monday, with President Trump scheduled to speak by video feed on Thursday. The annual global risk report from the WEF highlights rising geopolitical tensions and a fracturing of trust as top risks, which could impact the market in the coming weeks.
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