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U.S. stocks hit their highest since Donald Trump’s election victory as data showed underlying price pressures in the world’s largest economy were easing and Wall Street banks reported strong quarterly results. The day has arrived.
The S&P 500 ended 1.8% higher, and the tech-heavy Nasdaq Composite Index rose 2.5%. These gains marked the best day for stocks since Nov. 6, the day after the U.S. election.
Banks were among the biggest gainers on Wednesday after several of Wall Street’s biggest financial institutions posted strong quarterly profit gains on strong performance in their investment banking and trading divisions. Citigroup, Goldman Sachs and Wells Fargo all rose about 6%.
Investors also took note of figures from the Bureau of Labor Statistics showing that headline annual inflation rose in line with expectations to 2.9% in December from 2.7% in November.
However, core inflation, which subtracts volatile food and energy costs, unexpectedly fell to 3.2% from 3.3% last month.
Markets have been falling in recent weeks as investors dialed back expectations for Federal Reserve interest rate cuts in anticipation of President-elect Donald Trump’s economic policies, raising concerns that they could lead to inflation.
“Today’s CPI should provide a tailwind to the market and ease some of the fears that the U.S. is in the early stages of a second wave of inflation,” said Seema Shah, chief global strategist at Principal Asset Management.
The policy-sensitive two-year US Treasury yield, closely linked to interest rate expectations, fell 0.1 percentage point to 4.27%, while the 10-year Treasury yield, a gauge of global borrowing costs, fell 0.14 percentage point. It was 4.65%. . As prices rise, yields fall.
The dollar’s benchmark against six peer countries fell 0.2%.
Investors had expected the Fed to cut interest rates by a quarter of a point, the first of the year, in July compared to September, before the data was released.
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Fed officials signaled they intend to take a “cautious approach” to cutting interest rates amid concerns that inflation will not fall to the central bank’s 2% target anytime soon.
Mark Kavanagh, head of U.S. rates strategy at Bank of America, said inflation data, particularly the core numbers, are likely to “slightly increase” the Fed’s “confidence that inflation will continue to decline.” But he added that policymakers likely “remain generally dissatisfied with the slowing pace of progress on the inflation front.”
Most investors and analysts believe the Fed will not cut rates again at its next policy meeting later this month. In their own forecasts, U.S. central bankers have indicated they will only cut interest rates by another 50 basis points this year.
President Trump, who takes office on Monday, has laid out an aggressive plan to impose tariffs on a wide range of imports, carry out a major crackdown on illegal immigration and implement significant tax cuts.
Economists have warned that such plans could push up inflation even further.
“The real question mark surrounding inflation this year is not how the economy will affect inflation and what will happen before the Trump administration took office,” said David Kelly, chief global strategist at JPMorgan Asset Management. No,” he said. “What do new policies on tariffs, immigration, and fiscal policy mean for inflation?”
