The market’s ripping higher today as stocks surge across the board following a critical inflation report and strong bank earnings. The Dow Jones Industrial Average jumped over 600 points while the S&P 500 and Nasdaq Composite posted gains of 1.7% and 2.3% respectively.
The rally comes after December’s Consumer Price Index (CPI) data showed core inflation, which excludes volatile food and energy prices, rising at a slower pace than expected. While headline CPI increased 2.9% year-over-year, the core reading of 3.2% provided a glimmer of hope for investors anxiously watching inflation trends.
Bond yields retreated sharply on the news, with the 10-year Treasury yield dropping to 4.65% – a significant pullback from recent highs that had threatened to push past the psychologically important 5% level. The 2-year yield also declined, falling to 4.27%.
Banking giants helped fuel the upward momentum, with Goldman Sachs leading the charge. The investment bank’s stock surged 5%, contributing over 175 points to the Dow’s advance thanks to its outsized influence in the price-weighted index. Goldman’s better-than-expected quarterly profits set a positive tone for earnings season.
But beneath the surface, questions remain about whether this rally has staying power. Next week’s presidential inauguration looms large, with markets particularly focused on potential policy shifts that could impact inflation. The threat of new tariffs under the incoming administration has some analysts worried about renewed pricing pressures.
The VIX, Wall Street’s fear gauge, reflected the market’s improved sentiment by dropping 12% to around 16.50. That’s down over 40% from its mid-December peak near 28, suggesting traders are becoming more comfortable with the market’s trajectory.
Rate cut expectations are also shifting dramatically. The CME FedWatch Tool shows odds of multiple Fed rate cuts in 2025 are rising, with chances of no cuts falling to 17.3% from 25.7% before the CPI report. The probability of a half point in total cuts jumped to nearly 30%.
Gold prices are benefiting from the weaker dollar and inflation data, with futures climbing 1.1% to $2,711.90 per ounce. Some analysts see the precious metal potentially reaching $3,000 later this year, though near-term headwinds remain.
The broader market’s strength is impressive, with over 430 S&P 500 stocks trading higher. After weeks of uncertainty around inflation and interest rates, today’s combination of encouraging price data and solid bank earnings appears to be exactly what bulls needed to regain control.
Yet seasoned traders know better than to get overly excited about single-day moves. With Trump’s inauguration approaching and persistent questions about the Fed’s rate path, the market will need more than one good inflation report to confirm a sustainable uptrend.
For now, though, the bulls are clearly in charge as Wall Street embraces the possibility that inflation’s grip may finally be loosening. Whether this optimism proves justified or premature remains to be seen.
