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

Financials led the sector action on Wednesday as surge in investment banking and trading revenues helped drive well received results for multiple big banks including JPMorgan (JPM) Goldman Sachs (GS), Citigroup (C), and Wells Fargo (WFC).

Read more about their results here.

Amid a massive stock rally on Wednesday, large cap tech is still a clear leader.

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

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

A large drop in the 10-year Treasury yield (^TNX) down to 4.65% has sparked renewed interest in risk assets on Wednesday.

But as we’ve been highlighting, the 10-year’s recent surge higher has been driven by a multitude of reasons, not just expectations of higher inflation. And one positive Consumer Price Index report doesn’t give the all clear on the recent higher rate headwind for stocks, Wellington Management fixed income portfolio manager Brij Khurana told Yahoo Finance.

Khurana said it’s “still too early” to call a peak in bond yields for the time being, adding that if the new Trump administration brings more fiscal spending than anticipated, yields could start another move higher.

Still, Khurana described Wednesday’s market action as a “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 one particularly promising sign for the Federal Reserve.

The shelter index saw prices increase 4.6% compared to the year prior, the lowest level since January 2022. While the index still remains elevated, one of the sticker parts of the inflation story over the past several years continues to show the progress Federal Reserve chair Jerome Powell has discussed in recent press conferences.

“With housing services inflation, which is one that we’ve really worried about, it really has come down now quite steadily, at a slower pace than we thought … but it’s nonetheless steadily coming down,” Powell said on Dec. 18.

The additional progress in sticky areas of inflation like housing is why some economists believe interest rate cuts remain on the table in 2025.

“The slowdown of the past 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,” Jefferies US economist Thomas Simons wrote in a note to clients on Wednesday.

Read more on shelter inflation here.

Bitcoin (BTC-USD) spiked after Wednesday’s morning soft inflation reading, to reach just shy of $99,000.

The world’s largest cryptocurrency following the moves of the broader market has been an emerging trend in recent weeks.

Read more on what’s recently been driving bitcoin prices from Yahoo Finance’s Ethan Wolff-Mann here.

A reshuffling at JPMorgan (JPM) on Tuesday rose questions about when CEO Jamie Dimon will step down.

The bank’s leader said Wednesday it likely won’t be anytime soon.

Yahoo Finance’s David Hollerith reports:

Jamie Dimon agreed Wednesday with an analyst’s assessment that his “base case” for stepping down as JPMorgan Chase (JPM) CEO is a few years from now.

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

Read more here.

Oil prices jumped on Wednesday as US crude inventories fell for an eighth straight week.

West Texas Intermediate (CL=F) popped more than 2.5% to trade around $79.50 per barrel while Brent (BZ=F), the international benchmark, spiked 2% to hover above $81.

Oil rallied 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 stockpiles hit their highest level in a year.

Crude has been on the rise recently after the US announced broad-based sanctions against oil producer Russia in an effort to cut off Moscow’s revenue amid the ongoing war in Ukraine.

Last Friday, a hotter-than-expected December jobs report spooked the market and introduced a discussion about the Federal Reserve not cutting interest rates at all or possibly hiking interest rates at some point.

Largely, economists argued the jobs print intensified the focus on whether inflation will start to show the signs of softening that could prompt the Fed to cut interest rates in 2025. Early evidence of that trend came through in Wednesday’s Consumer Price Index (CPI) release.

On a “core” basis, which strips out the more volatile costs of food and gas, prices rose 3.2% compared with the previous year. This marked the first move lower in core CPI since July.

While economists don’t believe this data will push the Federal Reserve to cut interest rates at its January meeting, several do see a path for rate cuts later in 2025.

Citi economist Veronica Clark wrote in a note to clients on Wednesday that markets have “overestimated the stickiness of inflation.”

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

“Weaker inflation should give the Fed more confidence that recent acceleration was just a bump,” Morgan Stanley chief US economist Michael Gapen wrote. “This print is consistent with our call for a rate cut in March.”

JPMorgan (JPM) shares traded just above the flat line on Wednesday despite a large profit boost for America’s largest bank.

Yahoo Finance’s David Hollerith reports:

Last year JPMorgan Chase (JPM) churned out more profits than it ever has before, earning $14 billion in the final quarter of 2024.

Its full-year profits rose to $58 billion, an all-time record for JPMorgan and the most ever in the history of American banking. Its fourth quarter profits were up 50% from the year-earlier period.

That results were buoyed by a surge in JPMorgan’s Wall Street operations as dealmaking makes a comeback across the industry following a two-year drought. JPMorgan’s investment banking revenue was up 49% from a year earlier.

Read more here.

A broad-based rally in stocks took hold 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 charge. Five sectors were outperforming the S&P 500’s (^GSPC) 1.3% gain.

A recent headwind for stocks died away on Wednesday morning.

The 10-year Treasury yield (^TNX), which had been up at its highest level in more than a year, dropped more than 12 basis points to 4.66% following a cooler-than-expected consumer inflation reading.

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

Fresh consumer inflation data out Wednesday showed prices increased less than expected in December.

The Consumer Price Index data from the Bureau of Labor Statistics showed that on a “core” basis — which strips out the more volatile costs of food and gas — prices increased 0.2% month-on-month. That was lower than the 0.3% economists had expected.

On a yearly basis, core prices increased 3.2%, below the 3.3% economists had projected. It was the first move lower in the metric since July.

The headline CPI increased 2.9% over the prior year in December, an uptick from the 2.7% seen in November but in line with economists’ expectations. The index rose 0.4% over the previous month, topping the 0.2% increase seen in November and also on par with economists’ estimates.

Yours truly is getting ready to head out for another week of impactful reporting at the World Economic Forum in Davos, Switzerland — which kicks off next Monday. I will have more to say on what we will be doing there in this Sunday’s Morning Brief newsletter.

I will quickly note that a source familiar with the matter tells me President Trump will be speaking by video feed on Thursday, just days after his inauguration (and perhaps a flurry of executive orders).

But ahead of that fun, I thought WEF’s annual global risk report that dropped this morning is an interesting read. The top risk is “state-based armed conflict.” Other top risks include misinformation and disinformation (good to see Zuck no longer fact-checking at Meta…), extreme weather events, societal polarization, cyber-espionage and warfare.

Thinking a lot of these risks aren’t priced into Mag 7 stocks!

“Rising geopolitical tensions and a fracturing of trust are driving the global risk landscape” said WEF managing director Mirek Dušek in a statement. “In this complex and dynamic context, leaders have a choice: to find ways to foster collaboration and resilience, or face compounding vulnerabilities.”