New York — U.S. stock markets soared on Wednesday, driven by a combination of easing inflation data and extraordinary fourth-quarter profits from several of the nation’s largest financial institutions. This resurgence propelled all major indices into positive territory, marking a significant recovery since the start of 2025.
The Dow Jones Industrial Average surged by 703 points, or 1.65%, closing at 43,222. Meanwhile, the S&P 500 climbed 1.83%, and the tech-heavy Nasdaq Composite outperformed with a robust 2.45% gain. These gains came on the heels of a strong opening, as the Dow rallied nearly 700 points following the release of December’s Consumer Price Index (CPI) data.
The report from the Bureau of Labor Statistics revealed a deceleration in core inflation, which excludes volatile food and energy prices. Core CPI increased just 0.2% from November, bringing the annual rate down to 3.2% after months of stagnation at 3.3%. While headline inflation ticked up to 2.9% year-over-year, slightly higher than November’s 2.7%, the improvement in core metrics sparked optimism across financial markets.
This easing of inflationary pressures has bolstered confidence among investors, alleviating fears of a reversal in the Federal Reserve’s recent rate-cutting cycle. “The slowdown in core inflation is a welcome relief for both equity and bond markets, which have been weighed down by concerns of persistent inflation and potential rate hikes,” noted Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management.
The market’s buoyancy was further reflected in a sharp drop in the CBOE Volatility Index (VIX), often referred to as Wall Street’s fear gauge. The index plunged over 13% on Wednesday, underscoring a momentary reprieve for investors.
Adding to the positive sentiment were stellar earnings reports from major banks. JPMorgan Chase reported a record-breaking annual profit of $58.5 billion, with $14 billion in net income during the fourth quarter. CEO Jamie Dimon highlighted growing optimism among businesses, driven by expectations of a more pro-growth agenda and enhanced collaboration between government and the private sector.
Similarly, Goldman Sachs announced $4.11 billion in fourth-quarter profits, more than doubling its results from the same period in 2023. Citigroup followed suit with a $2.9 billion quarterly profit, a stark contrast to its $1.8 billion loss in the fourth quarter of 2023. Citi attributed its performance to higher revenues, reduced expenses, and a lower cost of credit.
Wells Fargo also delivered strong results, reporting a $5.1 billion profit for the fourth quarter of 2024, up from $3.4 billion a year earlier. The bank’s stock jumped 6.69% in response. Meanwhile, BlackRock, the world’s largest asset manager, posted a 21% increase in quarterly profits, reaching $1.67 billion, with assets under management surging to a record $11.55 trillion.
The bond market also reacted positively to the improved inflation outlook. The 10-year Treasury yield edged lower, reflecting a sense of relief among investors. Analysts emphasized that declining yields could provide additional support for equities. “A pullback in yields would act as a constructive tailwind for the stock market,” remarked Larry Tentarelli, Chief Technical Strategist at Blue Chip Daily Trend Report.
However, opinions on the Federal Reserve’s future actions remain divided. Morgan Stanley’s Chief U.S. Economist, Michael Gapen, interpreted the inflation data as supportive of a potential rate cut in March. Conversely, Bank of America Global Research expressed skepticism, maintaining that the Fed’s rate-cutting cycle has likely concluded. UBS echoed a more balanced view, suggesting that rate cuts remain possible as inflation continues to moderate.
Outside the banking sector, energy markets also made headlines. Brent crude, the global oil benchmark, surged over 3% to surpass $82 a barrel, while WTI crude futures climbed 3.65%, briefly crossing the $80 threshold for the first time since August 2024. The rally in oil prices, spurred by heightened geopolitical tensions and recent sanctions imposed by President Joe Biden on Russia’s oil industry, has raised concerns about potential upward pressure on inflation.
As Wall Street processes these developments, further insights are expected with Thursday’s earnings reports from Bank of America and Morgan Stanley. Investors are keeping a close watch, hopeful that the momentum in financial markets will carry through in the weeks ahead.
