| Company | Value | Change | %Change |
|---|
The Dow Jones surged 700 points, also aided by strong results from heavyweight banking names like JPMorgan, Goldman Sahcs and Citigroup. The S&P 500 rose 2% in its biggest single-day gain since the US election aftermath. The Nasdaq too gained nearly 2.5% or 450 points.
A Bloomberg gauge of the “Magnificent Seven” megacaps rallied 3.7%. The Russell 2000 advanced 2%. The KBW Bank Index surged 4.1% as Citigroup Inc., Goldman Sachs Group Inc., Wells Fargo & Co. and JPMorgan Chase & Co. kicked off the earnings season.
The US CPI rose in December by less than forecast, reinvigorating bets the Fed will slash rates sooner than previously thought. Swap traders are back to fully pricing in a rate cut by July. That was a quick shift after Friday’s jobs data spurred bets officials would only be able to resume policy easing in September or October. Not to mention the wagers on hikes.
The yield on 10-year Treasuries declined 14 basis points to 4.65%. The Bloomberg Dollar Spot Index fell 0.2%. Oil remained higher even after news that Israel and Hamas agreed to a ceasefire deal, bringing at least a temporary halt to the war in Gaza.
As risk takers resurfaced, the market’s “fear gauge” — the VIX — collapsed the most this year. A Goldman Sachs basket of money-losing tech companies jumped 3.2%, while a group of most-shorted shares added 3.8%. Bitcoin hovered near $100,000.
At the very least, the latest inflation figures are causing some short covering, according to Steve Wyett at BOK Financial.
“The market is relieved that potential ‘nose-bleed’ interest rates are — for now — taken off the table and the bond market will not curtail the massive run we’ve seen over the last two years in the equity markets,” said John Kerschner at Janus Henderson Investors.
At Evercore, Krishna Guha says the CPI print reinforces the view that the market has “overtraded” the inflation story since the start of the year on limited new information — and should be risk-on.
“It reinforces the base case for two Fed cuts, and keeps open the possibility of a March cut,” he noted.
To Ellen Zentner at Morgan Stanley Wealth Management, Wednesday’s CPI won’t change expectations for a pause later this month, but it should curb some of the talk about the Fed potentially raising rates.
“And judging by the market’s initial response, investors appeared to feel a sense of relief after a few months of stickier inflation readings.”
Indeed, the data provides a sigh of relief for the markets after coming in largely aligned with expectations, said Rajeev Sharma at Key Wealth.
“However, inflation data coming in line is not enough good news for the Fed to forget the strength of the job market and, in turn, should not be enough for the market to start anticipating a larger number of rate cuts for 2025,” Sharma noted.
After months of elevated prints, the easing in the CPI helps restart the conversation that inflation progress has resumed — but officials will need to see a series of subdued readings to be convinced. Lingering price pressures have contributed to a deep selloff in global bond markets and fueled concerns that the Fed eased policy too quickly at the end of last year.
Fed Bank of New York President John Williams voiced confidence that inflation would continue to recede, without offering any hints on the timing of additional cuts. His Richmond counterpart Tom Barkin said fresh data show continued progress on lowering inflation, but that rates should remain restrictive. Austan Goolsbee, president of the Chicago Fed, pointed to the data as supporting his outlook for easing price pressures.
“For the Fed, this is certainly not enough to prompt a January cut,” said Seema Shah, chief global strategist at Principal Asset Management. “But, if today’s print were accompanied by another soft CPI print next month plus a weakening in payrolls, then a March rate cut may even be back on the table.”
To Solita Marcelli at UBS Global Wealth Management, Fed cuts are still on the table as inflation should moderate over the coming months.
“The strength of the economy remains a supporting factor for corporate earnings growth at the current level of yields,” she noted. “While volatility could make it an uncomfortable journey before the S&P 500 hits our year-end target of 6,600, we expect the equity bull market to continue and maintain our ‘attractive’ rating on US equities.”
(With Inputs From Agencies.)
