Dow jumps 700 points, Nasdaq soars 2.5% after cool CPI reading

Financials led the sector’s action on Wednesday as an increase in investment banking and trading revenues helped deliver good results for several major banks including JPMorgan (JPM), Goldman Sachs (GS), Citigroup (C) and Wells Fargo (WFC).

Read more about their results here.

Amid Wednesday’s massive stock rally, large-cap technology companies remain clear leaders.

All seven of the so-called “Big Seven” tech stocks — Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) — rose by more From 1.5% or higher.

The Roundhill Magnificent Seven ETF (MAGS) rose more than 3.5%, far outpacing gains in the three major averages.

A sharp drop in the 10-year Treasury yield (^TNX) to 4.65% led to renewed interest in risk assets on Wednesday.

But as we highlighted, the recent rise over the past 10 years has been driven by many reasons, not just expectations of higher inflation. The positive CPI report doesn’t give all the clarity on the recent higher headwinds for stocks, Brij Khurana, fixed income portfolio manager for Wellington Management, told Yahoo Finance.

Khurana said it was “still too early” to pinpoint a peak in bond yields at the moment, adding that if the new Trump administration brings in greater fiscal spending than expected, yields could begin another step higher.

However, Khurana described Wednesday’s market moves as a “welcome reprieve for the bond market.”

“There are two-way risks to bond yields,” Khurana said. “It’s not just one way.”

Wednesday’s better-than-expected inflation reading showed a particularly promising sign for the Federal Reserve.

The Shelter Index saw prices increase 4.6% over the previous year, the lowest level since January 2022. While the index remains high, one of the poster pieces of the inflation story over the past several years continues to show the progress made by the Federal Reserve Chairman. Jerome Powell has been discussed in recent press conferences.

“With housing inflation, which is what we’re really concerned about, it has now come down quite steadily, at a slower pace than we thought… but it is coming down steadily nonetheless,” Powell said on December 18. .

Additional progress in difficult inflation areas like housing is why some economists believe interest rate cuts will still be on the table in 2025.

“The slowdown of the last few months is exactly what (Powell) was talking about, and should give the FOMC more confidence that they can continue to cut rates this year, even if they pause in the short term,” the expert said. American economist Thomas Jeffries. Simons wrote in a note to clients on Wednesday.

Read more about shelter inflation here.

Bitcoin (BTC-USD) rose after the weak inflation reading on Wednesday morning, reaching nearly $99,000.

The world’s largest cryptocurrency, which tracks broader market movements, has been an emerging trend in recent weeks.

Read more about what recently drove Bitcoin prices higher from Yahoo Finance’s Ethan Wolfman here.

A reshuffle at JP Morgan (JPM) on Tuesday raised questions about when CEO Jamie Dimon will step down.

The bank’s president said Wednesday that likely won’t be the case any time soon.

David Hollerith from Yahoo Finance reports:

Jamie Dimon on Wednesday agreed with one analyst’s assessment that his “primary argument” for stepping down as CEO of JPMorgan Chase (JPM) will be a few years from now.

The new comments about succession came a day after the nation’s largest bank announced a management shakeup that raised new questions about the race to succeed the 68-year-old Dimon, the big bank’s longest-serving CEO.

Read more here.

Oil prices rose on Wednesday as US crude inventories fell for the eighth straight week.

West Texas Intermediate (CL=F) crude oil rose more than 2.5% to trade around $79.50 a barrel, while Brent crude (BZ=F), the international benchmark, rose 2% to trade above $81.

Oil prices rose as US inventories fell by 1.96 million barrels last week to their lowest level since April, according to the latest Energy Information Administration data released on Wednesday. Meanwhile, gasoline stocks reached their highest level in a year.

The price of crude oil has recently surged after the United States announced broad sanctions on oil producer Russia in an attempt to cut off Moscow’s revenues amid the ongoing war in Ukraine.

Last Friday, a higher-than-expected December jobs report rattled the market and sparked discussion about the Fed not cutting interest rates at all or potentially raising interest rates at some point.

Largely, economists said the job printing has intensified focus on whether inflation will begin to show signs of slowing that could prompt the Fed to cut interest rates in 2025. Early evidence of that trend appeared in the release of the Consumer Price Index (CPI) on Wednesday.

On a “core” basis, which excludes the more volatile costs of food and gas, prices rose 3.2% from a year earlier. This marks the first downward move in the core CPI since July.

While economists don’t believe this data will prompt the Federal Reserve to cut interest rates at its January meeting, many see a path to lower rates later in 2025.

Markets have “overestimated how persistent inflation will be,” Veronica Clark, an economist at Citi, wrote in a note to clients on Wednesday.

“Details of the December data should also be encouraging for further (Fed) easing, with many components largely expected and in line with pre-pandemic norms,” Clark wrote.

“Weaker inflation should give the Fed more confidence that the recent acceleration was just a bump,” wrote Michael Jaben, chief U.S. economist at Morgan Stanley. “This reading is consistent with our call for rate cuts in March.”

Shares of JPMorgan (JPM) traded just above the flat line on Wednesday despite a big increase in profits for America’s largest bank.

David Hollerith from Yahoo Finance reports:

Last year JPMorgan Chase (JPM) exited. More profits More than ever, earning $14 billion in the last quarter of 2024.

Full-year profits rose to $58 billion, an all-time record for JPMorgan and the most ever in the history of U.S. banking. Fourth-quarter earnings were up 50% from the corresponding period a year earlier.

These results were boosted by JPMorgan’s increased Wall Street operations as dealmaking returns across the industry after a two-year drought. JPMorgan’s investment banking revenues rose 49% from the previous year.

Read more here.

The broad-based rally in stocks continued at the open of Wednesday’s trading session on Wall Street.

All 11 sectors were in the green, with interest rate-sensitive sectors such as real estate (XLRE) and utilities (XLU) leading the way. Five sectors outperformed the S&P 500 (^GSPC) by 1.3%.

The recent headwinds for stocks faded Wednesday morning.

The 10-year Treasury yield (^TNX), which rose to its highest level in more than a year, fell more than 12 basis points to 4.66% after a lower-than-expected consumer inflation reading.

Meanwhile, stocks rose, with all futures contracts tied to the major averages rising 1.5% or more.

New consumer inflation data released on Wednesday showed that prices rose less than expected in December.

Consumer price index Data A report from the Bureau of Labor Statistics showed that on a “core” basis — which excludes more volatile food and gas costs — prices rose 0.2% month-over-month. That was lower than economists’ expectations of 0.3%.

On an annual basis, core prices rose by 3.2%, less than economists’ expectations of 3.3%. This was the first downward move in the gauge since July.

The headline CPI rose 2.9% from a year earlier in December, up slightly from 2.7% in November but in line with economists’ expectations. The index rose 0.4% compared to the previous month, exceeding the 0.2% increase seen in November and also on par with economists’ estimates.

You’re really gearing up for another week of impactful reports at the World Economic Forum in Davos, Switzerland – which starts next Monday. I’ll have more to say about what we’ll be doing there in our Sunday morning round-up newsletter.

I’ll quickly note that a source familiar with the matter told me that President Trump will speak via video on Thursday, just days after his inauguration (and possibly a series of executive orders).

But before that fun, I thought about the World Economic Forum Annual global risk report That went down this morning is an interesting read. The greatest danger is “state-based armed conflict.” Other major risks include misinformation and disinformation (good to see Zuck no longer fact-checks Meta…), extreme weather events, societal polarization, online espionage, and war.

I think a lot of this risk is not priced into Mag 7 stock!

“Rising geopolitical tensions and collapsing confidence are driving the global risk landscape,” Mirek Ducek, Managing Director of the World Economic Forum, said in a statement. “In this complex and dynamic context, leaders have a choice: find ways to strengthen cooperation and resilience, or confront increasing vulnerabilities.”