Wall Street soars on record bank profits and cooling inflation

New York (CNN) — US stocks surged higher Wednesday after an encouraging inflation report and blockbuster profits for some of America’s biggest banks.

The Dow surged 703 points, or 1.65%, to close at 43,222. The S&P 500 rose 1.83% and the tech-heavy Nasdaq Composite ended the day higher by 2.45%.

The closing bell concluded a rally on Wall Street that has helped all three major indices recover losses and post overall gains since the start of 2025.

Stocks had started the day on a strong note, with the Dow almost 700 points higher immediately after the latest inflation snapshot was released. Data showed a slowdown in the core measure of the Consumer Price Index for the first time in months, rising just 0.2% from November and easing to 3.2% year over year after staying stuck at 3.3% since September 2024.

That’s an improvement despite headline consumer prices rising 2.9% year-over-year in December, edging up from 2.7% the month before, according to data from the Bureau of Labor Statistics released Wednesday.

“We believe the market will be encouraged by the decrease in core inflation, which should alleviate some of the pressure on stock and bond markets, both of which have had a poor start to the year on inflation fears and concerns the Federal Reserve would not only stop cutting interest rates, but could even reverse course and begin raising them,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management, in a note.

The VIX, Wall Street’s fear gauge, fell more than 13% on Wednesday as investors felt a moment of relief.

“While volatility could make it an uncomfortable journey before the S&P 500 hits our year-end target of 6,600, we expect the equity bull market to continue,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, in a note Wednesday.

Robust bank earnings for the fourth quarter are a positive signal for the wellbeing of the biggest players in US financial markets ahead of President-elect Donald Trump’s return to the White House.

JPMorgan Chase (JPM) posted a record annual profit of $58.5 billion, hauling in $14 billion in net income in the fourth quarter as an environment of lower interest rates and post-election market volatility proved profitable for the bank.

“Businesses are more optimistic about the economy, and they are encouraged by expectations for a more pro-growth agenda and improved collaboration between government and business,” said JPMorgan Chase CEO Jamie Dimon in a statement.

Goldman Sachs (GS) also posted strong earnings on Wednesday, recording $4.11 billion in profit in the fourth quarter, more than double its profit in the fourth quarter of 2023.

Citi (C) posted a $2.9 billion profit in the fourth quarter of 2024 compared with a $1.8 billion loss in the fourth quarter of 2023. That was “primarily driven by the higher revenues, lower expenses and lower cost of credit,” according to a press release. Shares of Citigroup rose by about 6.49%.

Wells Fargo (WFC) stock rose by 6.69% Wednesday after beating expectations and recording a $5.1 billion profit in the fourth quarter of 2024, up from $3.4 billion in the same period a year prior.

“Our number one stock idea for 2025 is long investment banks due to a likely boom in both M&A and AI related IPOs,” said Jay Hatfield, CEO and CIO at Infrastructure Capital Advisors, in an email.

BlackRock (BLK), the world’s largest asset management firm, reported a fourth-quarter profit of $1.67 billion, up 21% from the same period a year prior. BlackRock’s assets under management in 2024 increased to a record $11.55 trillion, up 15% from the previous year. BlackRock stock was up 5.19% Wednesday.

The 10-year Treasury yield edged lower as the bond market digested the improvement in core inflation, highlighting just how nervous some investors were about the potential for a rise in inflation.

The slide in yields is welcome news for the stock market, where investors were recently worried that rising yields would pull money out of stocks and toward bonds.

“Any further pullback in yields would be a constructive tailwind for stocks and the S&P 500,” Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, said in a note.

Joe Brusuelas, chief economist at RSM US, said he suspects the bond and stock market reactions could fade. “These aren’t good numbers,” Brusuelas said of the inflation report. “The bond market is very skittish right now. And they are prone to overreaction.”

Wall Street is mixed on future Fed rate cuts

After a blowout jobs report on Friday, Wall Street adjusted its expectations for fewer rate cuts from the Fed in 2025 than previously expected. Yet there is anything but consensus across the big banks.

Michael Gapen, chief US economist at Morgan Stanley, said in a note Wednesday that he thinks Wednesday’s inflation report is consistent with a rate cut from the Fed in March.

“Weaker inflation should give the Fed more confidence that recent acceleration was just a bump,” Gapen said.

Meanwhile, Bank of America Global Research maintains its view that the Fed is done cutting rates.

“Today’s CPI print reduces the risk of imminent hikes … But it doesn’t move the needle on our view that the Fed cutting cycle is over,” said Aditya Bhave, senior US economist at Bank of America Global Research, in a Wednesday note.

UBS’ Marcelli said in a Wednesday note that rate cuts from the Fed “are still on the table” as she expects inflation to continue to moderate.

The price of Brent crude, the global oil benchmark, surged more than 3% to surpass $82 a barrel and hit its highest price since August 2024. Futures on WTI crude, the US benchmark, surged about 3.65% and briefly crossed $80 a barrel for the first time since August. Oil prices have increased significantly since the end of 2024, a rally that could meaningfully lift gasoline prices and raise concerns about inflation.

Late last week, President Joe Biden imposed some of the toughest sanctions yet on Russia’s oil industry, adding to the upward pressure on energy prices.

Quarterly earnings from Bank of America (BAC), Morgan Stanley (MS) and more are expected Thursday.