U.S. stock markets rallied strongly on Wednesday, driven by a mix of economic data and positive corporate earnings reports. Day’s gains came after the latest consumer price index (CPI) report revealed that core inflation slowed unexpectedly in December. This development, coupled with blowout earnings results from major U.S. banks, fueled investor optimism.
Stock Market Overview
Dow Jones Industrial Average surged 703.27 points, or 1.65%, closing at 43,221.55. S&P 500 climbed 1.83%, ending day at 5,949.91, and Nasdaq Composite jumped 2.45%, finishing at 19,511.23. This marked the best performance for all three major indices since November 6, 2024, highlighting the market’s positive response to economic data.
Core Inflation Shows Signs of Cooling
December CPI report showed a surprising slowdown in core inflation, which excludes food and energy prices. Core inflation rose 3.2% year-over-year, a slight drop from the previous month’s 3.3%, and below the 3.3% forecasted by economists surveyed by Dow Jones. Headline inflation, which includes food and energy, increased by 2.9% on a 12-month basis, in line with expectations.
John Kerschner, Head of U.S. Securitized Products at Janus Henderson Investors, explained the market’s reaction: “market is breathing a sigh of relief as both PPI and CPI reports came in slightly below expectations. Perhaps most importantly, today’s CPI number takes additional rate hikes off the table, which some market participants were beginning to prematurely price in.”
An unexpected drop in core inflation caused the 10-year Treasury yield to sharply decrease by approximately 13 basis points to 4.65%. Yield decline led to a boost in growth stocks, such as Tesla and Nvidia, which surged by 8% and 3%, respectively.
Fourth-Quarter Earnings Beat Expectations
earnings season for major U.S. banks also kicked off on a positive note, with top financial institutions reporting better-than-expected results. JPMorgan Chase saw its shares rise nearly 2% after reporting strong earnings per share (EPS) and revenue beat, driven by robust fixed-income trading and investment banking performance.
Meanwhile, Goldman Sachs posted impressive results, with both its top and bottom lines exceeding expectations, causing its stock to climb 6%. Wells Fargo followed suit, gaining more than 6% after it forecasted a 1% to 3% increase in net interest income for 2025. Citigroup also posted positive results, with shares climbing 6% after the bank reported a better-than-expected fourth-quarter performance.
Larry Tentarelli, Chief Technical Strategist at Blue Chip Daily Trend Report, commented, “Bank earnings are key because the financial sector is so tied to the general economy. For the big banks to put up bullish numbers today bodes well for the broader market.”
FTAI Aviation’s Struggles
On the flip side, FTAI Aviation saw its stock plummet by as much as 40% on Wednesday following the release of a bearish short report from Muddy Waters Research. The report accused the aircraft and jet engine leasing company of misleading investors with inaccurate financial reporting. Muddy Waters argued that FTAI was overreporting its revenue by classifying one-time engine sales as maintenance revenue, a move it deemed misleading.
Stock loss translated into a massive market value drop, exceeding $6.3 billion at its lowest point. Despite a severe dip, FTAI Aviation has yet to respond to claims in the Muddy Waters report. The company is set to release its financial results on February 20.
Market Sensitivity to Treasury Yields
market’s strong performance also reflected the increasing sensitivity of investors to moves in Treasury yields. According to Mark Hackett, Chief Market Strategist at Nationwide, the recent pullback in yields was a welcomed change after the 10-year Treasury yield had increased by 1.2% since September 2024. Hackett noted, “Equity investors have become increasingly sensitive to changes in the bond market, with a heightened focus on rates, inflation, and Federal Reserve policies.”
He further explained that the slowdown in inflation and subsequent drop in Treasury yields had provided much-needed relief to investors, particularly in the growth stock sector.
Looking Ahead
As earnings season progresses, investors will continue to monitor economic data, particularly inflation trends, and corporate earnings reports. A strong start to fourth-quarter earnings season from major banks has given market participants reason to be optimistic, while inflation data may influence future Federal Reserve policy decisions.
With U.S. equities showing strong performance on Wednesday, the outlook for markets remains cautiously positive as investors evaluate both economic indicators and corporate earnings in the weeks ahead.