US Stocks Rally on Cooling Core Inflation, Banks’ Earnings in Focus

Both the CPI data and the results from a few major financials are celebrated by the major US stock indices. When the CPI and PPI are combined, analysts predict that the core PCE will be announced later this month at 0.19%, slightly below the 0.2% threshold. The MoM’s three- and six-month averages for that important inflation indicator are exactly 0.2%. It is within the 2% to 3% range, however it is not 2.0% YoY.

An overview of today’s earnings is as follows:

Citigroup – Q4 2024: EPS $1.34 (BEAT; exp. $1.22), Revenue $19.58B (BEAT; exp. $19.49B). Announces $20B stock buyback.

Goldman Sachs – Q4 2024: EPS $11.95 (BEAT; exp. $8.22), Revenue $13.87B (BEAT; exp. $12.39B).

JPMorgan Chase & Co – Q4 2024: EPS $4.81 (BEAT; exp. $4.11), Revenue $43.74B (MET; exp. $41.73B).

Wells Fargo & Co – Q4 2024: EPS $1.43 (BEAT; exp. $1.35), Revenue $20.378B (MISS; exp. $20.58B).

BlackRock – Q4 2024: EPS $11.93 (MISS; exp. $11.21), Revenue $5.67B (BEAT; exp. $5.53B).

Dow industrial average up 709 points or 1.67% at 43230.44

S&P index up 96.75 points or 1.66% at 5939.

NASDAQ index up 384 points or 2.02% at 19429.50.
The Magnificent Seven:

Tesla: Price $415.68, Change +$19.32, Change +4.87%.

Meta Platforms : Price $612.24, Change +$17.99, Change +3.03%.

Amazon.com: Price $222.70, Change +$4.94, Change +2.27%.

Microsoft: Price $423.81, Change +$8.14, Change +1.96%.

Alphabet: Price $193.07, Change +$3.41, Change +1.80%.

Apple: Price $237.29, Change +$4.01, Change +1.72%.

NVIDIA: Price $133.61, Change +$1.85, Change +1.40%.

The US stock market experienced a significant rally on Wednesday, driven by a key inflation report that revealed a cooling trend in core prices. While headline inflation, which includes volatile food and energy costs, rose slightly more than expected, the focus shifted to the core Consumer Price Index (CPI), which excludes these factors. This core figure, a closely watched indicator for the Federal Reserve, showed a surprising deceleration.

The headline CPI increased by 0.4% month-over-month in December, slightly exceeding expectations. However, the annual inflation rate climbed to 2.9% from 2.7% in November, remaining within the anticipated range.

The real market mover was the core CPI, which rose by only 0.2% month-over-month, compared to 0.3% in November. This marked the first slowdown in core inflation growth in several months, a development that significantly impacted investor sentiment. The deceleration in core inflation fueled speculation that the Federal Reserve might continue its recent trend of interest rate cuts.

This positive inflation data triggered a surge in stock prices. The Dow Jones Industrial Average experienced a significant rally, climbing over 750 points at its peak, pushing past the 43,000 mark. The broader S&P 500 Index and the technology-heavy Nasdaq Composite also recorded substantial gains, reflecting a widespread bullish sentiment across the market.

The decline in core inflation has significantly increased market expectations for further interest rate cuts by the Federal Reserve. The CME FedWatch Tool, which tracks market expectations for Fed policy, showed a notable increase in the probability of a rate cut at the upcoming January 29th meeting.

The Dow Jones, after a period of consolidation, demonstrated renewed strength, breaking above its 50-day Exponential Moving Average. This technical indicator suggests a resurgence of bullish momentum for the index. The 42,000 level has proven to be a crucial support level, with buyers consistently stepping in to prevent further declines.

The recent rally has brought the Dow Jones closer to its all-time high, surpassing the 45,000 mark. However, a sustained break below the 42,000 level could signal a shift in market sentiment and potentially dampen the current bullish trend.

The unexpected deceleration in core inflation has significantly boosted investor confidence and fueled a strong rally in US stocks. While headline inflation showed a slight increase, the cooling trend in core prices has fueled expectations for continued monetary easing by the Federal Reserve, creating a favorable environment for stock market growth.