On a dynamic Wednesday, the American stock market experienced a remarkable surge following the release of the Consumer Price Index (CPI) for December, which revealed an unexpected slowdown in core inflation

Advertisements

This lifted market sentiment and coincided with the commencement of the quarterly earnings reporting season among major banks.

The Dow Jones Industrial Average soared by 703.27 points, closing at 43,221.55, reflecting a 1.65% increaseThe S&P 500 index rose by 1.83% to 5,949.91 points, while the Nasdaq Composite climbed 2.45%, reaching 19,511.23 pointsThis marked the best performance for all three major indices since November 6. Moreover, the index tracking the seven major US tech giants rose by 3.16%, landing at 55,752.83 points.

European markets echoed this positive sentiment as major indices collectively advancedThe UK’s FTSE 100 increased by 1.21% to reach 8,301.13 points, while Germany's DAX saw a larger boost of 1.50%, closing at 20,574.68 points

Advertisements

The French CAC 40 index also experienced a 0.69% uptick, finishing at 7,474.59 points.

Chinese concept stocks rallied as wellThe Direxion Daily China Bull 3X ETF surged 3.64%, the iShares MSCI China ETF increased by 1.07%, and the Nasdaq Golden Dragon China Index climbed 0.97%, settling at 6,552.03 pointsSimilarly, the CSI Technology Index was up 2.04%, closing at 3,119.84 points.

Meanwhile, spot gold prices also climbed to around $2,695 per ounce, with COMEX gold seeing prices at $2,724.5 per ounceOil prices surged in tandem with these market movements.

The U.SBureau of Labor Statistics released the December CPI, indicating that core inflation, excluding food and energy, rose by 3.2%. This reflects a slight decline from the previous month and falls below economists' expectations of 3.3%. Overall inflation saw a 12-month increase of 2.9%, aligning with forecasts.

Additionally, the latest data from the Federal Reserve revealed a rebound in economic activity over the past seven weeks, with jobs and prices showing signs of recovery

Advertisements

The Fed’s Beige Book reported moderate growth across its 12 districts, with consumer spending and automobile sales on the rise, while construction saw declines due to higher material and financing costs.

In terms of the job market, the report indicated a slight increase in employment in half of the Fed’s districts, while the remainder remained stableWages were noted to be growing at a "moderate" paceWhen discussing inflation, prices experienced an overall “modest” increase, although retail and manufacturing sectors showed signs of softening.

John Kerschner, head of U.Ssecuritized products for Janus Henderson Investors, remarked, “With consecutive inflation indicators this week revealing PPI and CPI slightly below expectations, the market finally breathed a sigh of relief

Perhaps most importantly, the CPI data suggests the likelihood of further rate hikes is diminishing, with some market participants potentially having priced that in prematurely.”

In response to the CPI report, the yield on the 10-year U.STreasury fell about 14 basis points to 4.657%. With this decline, growth stocks like Tesla and Nvidia saw shares rise approximately 8% and 3%, respectively.

The earnings season kicked off on a positive note for major U.Sbanks, with results generally surpassing Wall Street’s expectationsJPMorgan Chase saw shares increase by nearly 2% after reporting earnings per share and revenue that exceeded predictions, fueled by strong fixed-income trading and investment banking performance.

Goldman Sachs stock surged by 6% following a quarterly revenue and earnings report that outperformed expectations

alefox

Wells Fargo announced a 1% to 3% growth in net interest income by 2025, prompting their stock to rise over 6%. Citigroup shares also climbed by 6% after the bank’s fourth-quarter results exceeded estimates.

“Today marked a strong start to earnings seasonThe performance of banks is crucial as the financial sector is intricately linked to the broader economyTherefore, seeing these large banks report optimistic numbers is a good sign,” stated Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report.

UBS commented that the rocky journey of the U.Sstock market in 2025 might not be quite over yetIn a report sent to clients on Wednesday, UBS wrote, “We anticipate that amidst uncertain interest rates, market volatility will persist as investors react to newly released data and forthcoming policy news over the coming weeks and months.”

Nevertheless, UBS believes that the tumultuous start to the new trading year is “not predominantly due to any negative fundamental economic news.” Meanwhile, it forecasts that the Fed will lower rates by another 50 basis points later in the year.

// Federal Reserve Officials Speak //

John Williams, the president of the New York Federal Reserve Bank, stated he expects inflation will continue to move toward the central bank's 2% target this year, adding that he would not be satisfied until that goal is achieved.

The inflation report on Wednesday offered comforting signs, indicating that price pressures may alleviate before the end of 2024. However, the new data seems likely to keep the Fed's favored core inflation measure above last month’s target.

Williams noted that inflation had significantly eased since peaking in 2022; however, the Fed would not be satisfied without further downward momentum

He stated on Wednesday, “You want to see inflation moving steadily towards the 2% target from today’s levelA 2% inflation rate is what I truly wish to see.”

His comments come as one of the last opportunities for senior Fed officials to express their views on monetary policy outlook ahead of the first meeting of 2025 in late JanuaryThere is a week-and-a-half blackout period before the meeting, which prohibits Fed policymakers from commenting publicly.

Investors widely expect the Fed to hold rates steady in January, following a 100 basis point cut during the last three meetings of 2024. Williams remarked that, as the economy stabilizes, the central bank can take its time in addressing incoming data.

He expressed, “In my personal view, based on the actions taken last year, our monetary policy is in an extremely favorable position now, and we can take our time to analyze the data we receive.”

Traders are now left wondering whether the central bank will consider loosening rates again later this year