Stocks surged as traders responded strongly to the first major inflation report of the year and the kickoff of fourth-quarter earnings season, though one strategist warns the market’s recent fickle nature should keep investors on their toes.
Key facts
- Major stock indexes rose sharply Wednesday: The Dow Jones Industrial Average was up 1.4%, or about 580 points, by 12 p.m. EST, the S&P 500 climbed 1.3% and the tech-heavy Nasdaq jumped 1.8%.
- The Dow and S&P are both on pace for their best days since Nov. 6, the day after the election.
- The key catalyst for the across-the-board rally was Wednesday’s consumer price index inflation report, which revealed overall inflation was 2.9% in December, the highest level since July but meeting consensus economist forecasts, while core CPI inflation, which excludes food and energy price changes, was 3.2%, better than the 3.3% consensus estimates.
- “Markets reacted positively this morning for a good reason: The Federal Reserve is ok with watching the headline CPI go up temporarily if that increase does not spill over into the core CPI, and this is what happened in December,” explained Eugenio Aleman, Raymond James’ chief economist, in emailed comments, referring to the U.S. central bank in charge of interest rates, which equity investors want to go down.
- The S&P’s financials sector gained more than 2%, rising thanks to Q4 earnings reports released Wednesday morning from big banks Citigroup (shares up 7%), Goldman Sachs (up 6%), JPMorgan Chase (up 2%) and Wells Fargo (up 6%), all of which reported quarterly profits above average analyst estimates.
- The bond market also rallied, as yields for the benchmark 10-year U.S. Treasury note fell by more than 13 basis points to about 4.65%, returning to where they were before Friday’s jobs report (a decline in yields signals an increase in a bond’s value).
Crucial quote
“Markets are likely to be whipsawed over the next few data releases as investors seek a narrative that they can be comfortable with for more than just a few days at a time,” predicted Seema Shah, Principal Asset Management’s chief global strategist, in emailed comments.
Key background
It’s been a volatile start to the year for stocks, as Wednesday is shaping out to be the fourth 1% or greater move for the S&P of 2025, a feat that didn’t occur last year until February. Major indexes trade within 5% of the all-time highs they set last month, but the recent turbulence comes as the market adjusts to economic conditions and the increased likelihood of less rate cuts, which cut into stock valuations.
