Wall Street saw a significant surge on Wednesday following an encouraging inflation report and impressive profits posted by some of the largest banks in the country.
The Dow Jones Industrial Average closed 703 points higher, a gain of 1.65%, ending the day at 43,222. The S&P 500 climbed 1.83%, while the tech-heavy Nasdaq Composite surged by 2.45%. This rally marked a strong recovery for all three major indices, erasing earlier losses and pushing them into positive territory for the year 2025.
The markets opened strong, with the Dow jumping nearly 700 points early in the session after the release of the latest inflation data. The Consumer Price Index (CPI) report indicated a slowdown in core inflation, rising just 0.2% from November and easing to 3.2% year-over-year after remaining at 3.3% since September 2024. Though headline inflation increased slightly from 2.7% in November to 2.9% in December, the easing core inflation offered hope for the markets.
Financial experts noted that the decrease in core inflation could ease pressure on both stock and bond markets, which had experienced a rough start to the year due to concerns over persistent inflation and fears that the Federal Reserve might halt rate cuts or even consider raising interest rates.
The Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” dropped more than 13% on Wednesday, signaling a boost in investor confidence. Analysts projected continued market growth despite potential fluctuations, expressing optimism for a continued equity bull market through 2025.
Record Bank Earnings Fuel Optimism
Another major factor driving the market surge was the announcement of record profits from some of the largest US banks, indicating strong financial health in the sector.
JPMorgan Chase posted a record annual profit of $58.5 billion, including $14 billion in net income for the fourth quarter alone. The bank’s success was attributed to favorable market conditions with lower interest rates and volatility following the 2024 elections. CEO Jamie Dimon commented that businesses were showing increased optimism about the economy due to expectations for a more growth-oriented agenda and better collaboration between the government and private sector.
Goldman Sachs also reported exceptional earnings, with a profit of $4.11 billion in the fourth quarter, more than doubling its profit from the same period in 2023.
Citigroup turned its fortunes around, reporting a $2.9 billion profit in Q4 of 2024 compared to a $1.8 billion loss in the same quarter the previous year. The turnaround was driven by higher revenues, lower expenses, and reduced credit costs. Citigroup’s stock surged by 6.49% following the earnings announcement.
Wells Fargo also impressed investors, posting a $5.1 billion profit for the fourth quarter of 2024, significantly up from $3.4 billion a year earlier. The bank’s stock rose by 6.69% on the positive results.
Investment firms also posted strong results. BlackRock, the world’s largest asset management firm, reported a fourth-quarter profit of $1.67 billion, a 21% increase compared to the previous year. The firm’s assets under management surged to a record $11.55 trillion, marking a 15% increase from 2023. BlackRock shares jumped 5.19% on the day.
Analysts predicted a positive outlook for investment banks in 2025, citing expectations for a surge in mergers and acquisitions (M&A) as well as initial public offerings (IPOs) driven by developments in artificial intelligence.
Bond Market Reactions and Inflation Concerns
The bond market also reacted positively to the inflation data, with the 10-year Treasury yield edging lower. This decline suggested relief among investors concerned that rising yields could shift money away from stocks into bonds. Some experts noted that any further drop in yields would be favorable for stock performance, especially for the S&P 500.
Despite the optimism, some economists expressed caution, noting that market reactions might be temporary. The bond market remains on edge, with investors highly sensitive to inflation fluctuations.
Fed Rate Cut Speculations
Following a strong jobs report earlier in the week, Wall Street has adjusted its expectations for Federal Reserve rate cuts in 2025. However, opinions remain divided among major financial institutions.
Morgan Stanley’s chief US economist suggested that the recent inflation report supported a possible rate cut in March, indicating that weaker inflation could give the Fed more confidence in easing monetary policy.
However, Bank of America Global Research maintained a more conservative stance, arguing that the Fed’s rate-cutting cycle might already be over.
UBS offered a middle-ground perspective, suggesting that while inflation continues to ease, rate cuts are still a possibility in the near future.
Oil Prices and Energy Market Impact
Oil prices also saw a sharp increase on Wednesday. Brent crude, the global benchmark, surged over 3%, surpassing $82 per barrel — the highest since August 2024. Similarly, WTI crude futures climbed 3.65%, briefly crossing $80 per barrel for the first time since August.
Wall Street has attributed this rise in oil prices to recent geopolitical tensions and the sanctions imposed by President Joe Biden on Russia’s oil industry, adding upward pressure on energy costs.
The surge in oil prices has raised concerns that higher gasoline costs could contribute to future inflation spikes, countering some of the recent positive market trends.
Looking Ahead
Earnings reports from Bank of America, Morgan Stanley, and other major financial institutions are expected on Thursday, which could further influence market performance.
As inflation shows signs of cooling and banks continue to post strong earnings, Wall Street remains cautiously optimistic. However, with ongoing inflation concerns and mixed signals from the Federal Reserve, market volatility could persist in the coming months.