Stocks staged a robust relief rally after underlying consumer price inflation moderated last month, helping to ease market participants' fears about the Federal Reserve's policy for interest rate cuts. Meanwhile, some of the nation's biggest banks kicked off earnings season with better-than-expected results.
Although a string of encouraging quarterly reports from the financial sector helped market sentiment, the proximate fuse for Wednesday's broad-based rally was the latest release of the Consumer Price Index report for December.
A cooler-than-expected reading on underlying consumer price inflation eased fears about the Federal Reserve having to become more hawkish on interest rate cuts and solidified market expectations for a pause at the central bank's next meeting.
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For the record, headline December CPI increased 0.4% month over month – a slight increase over the 0.3% rate seen in each of the previous four months – to match economists' expectations. On an annual basis, headline CPI rose 2.9%, according to the Bureau of Labor Statistics. Although inflation accelerated on a year-over-year basis, the print comported with market forecasts.
More importantly, core CPI, which excludes food and energy costs and is considered a better indicator of future prices, increased 0.2% after rising 0.3% for four straight months. Not only did that beat estimates for a 0.3% increase, it represented the first drop in the rate in six months.
"Investors are rejoicing as this morning's CPI report featured lighter-than-expected annualized core inflation alongside a welcome deceleration," writes José Torres, senior economist at Interactive Brokers. "Major benchmarks are surging, and yields are tumbling, amidst expectations that another Fed rate reduction has been advanced to June."
The financial sector led the broader market, helped by a series of upside surprises from big bank earnings (see more below). Other risk-sensitive sectors outperforming Wednesday included consumer discretionary, information technology and communications services.
At the closing bell, the blue chip Dow Jones Industrial Average added 703 points, or 1.7%, to end at 43,221. The tech-heavy Nasdaq Composite rose 2.5% to 19,511, while the broader S&P 500 gained 1.8% to end at 5,949.
Bank stocks soar
As noted above, the financial sector was Wednesday's top performer, helped by a strong start to big banks earnings season.
JPMorgan Chase (JPM), the nation's largest bank by assets – and a Buy-rated Dow Jones stock – capped off last year with record profits. The market approved, as JPM stock gained almost 2% after the money center bank beat top- and bottom-line expectations for its fourth quarter.
JPMorgan ended the quarter with $4 trillion in assets under management and a book value per share of $116.07, representing year-over-year increases of 18% and 11%, respectively.
For fiscal 2025, JPMorgan said it expects to achieve net interest income of approximately $94 billion, an increase of about 1.5% from $92.6 billion in fiscal 2024.
At the same time, Citigroup (C) stock rose 6.5% after the third-largest bank in the U.S. beat top- and bottom-line expectations for its fourth quarter and announced a new, multi-year $20 billion share repurchase program.
"Citi is executing on its strategy, and we like how the bank is positioned for growth across institutional markets," wrote CFRA Research analyst Kenneth Leon in a note to clients. "C has a leading franchise in corporate treasury services, technology platforms, and expanded global wealth. We think the bank is doing a good job delivering transparency and consistency in its operating results."
Citigroup has turned in a stellar performance on the price charts over the past 12 months, up 48% on a total return (price change plus dividends) basis vs the S&P 500's 24% gain. Wall Street is bullish on this component of the Berkshire Hathaway equity portfolio.
WFC stock surges on results
Wells Fargo (WFC) was among the best-performing stocks in the S&P 500 Wednesday, popping 6.6% on earnings. The nation’s fourth-largest bank beat profit expectations for its fourth quarter and issued a positive outlook for fiscal 2025.
Wells Fargo's impressive earnings-per-share beat "along with a strong statement about continued growth and productivity gains lifted guidance more than expected," says Brian Mulberry, client portfolio manager at Zacks Investment Management. "This is evidence that the expense management project continues to pay dividends on the balance sheet, combined with better net interest income results boosting revenues by as much as 3% demonstrates that WFC is in a strong balance sheet position."
WFC stock generated a total return of 54% over the past 52 weeks, more than doubling the performance of the broader market. Analysts, as a group, are mixed on how much more upside they see ahead.
Of the 25 analysts covering WFC surveyed by S&P Global Market Intelligence, nine call it a Strong Buy, five call it a Buy, 10 have it at Hold and one calls it a Sell. That works out to a consensus recommendation of Buy, albeit with mixed conviction.
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