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CNN
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U.S. stocks rose on Wednesday following an encouraging inflation report and blockbuster profits for some of America’s largest banks.

The Dow rose 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 up 2.45%.

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

Stocks had started the day well, with the Dow gaining nearly 700 points immediately after the release of the latest inflation survey. The data showed a slowdown in the core measure of the consumer price index for the first time in months. It rose just 0.2% from November and fell to 3.2% year-on-year after remaining at 3.3% since September 2024.

That’s an improvement even though overall consumer prices rose 2.9% year-over-year in December, up slightly from 2.7% the previous month, according to Bureau of Labor Statistics data released Wednesday.

“We believe the market is encouraged by the decline in core inflation, which should ease some pressure on the stock and bond markets, both of which have had a poor start to the year due to inflation fears and Federal Reserve concerns.” “We will stop cutting interest rates, but we might even reverse course and start 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 unpleasant journey for the S&P 500 to reach our year-end target of 6,600, we expect the equity bull market to continue,” Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, said in a statement Interview note Wednesday.

Robust fourth-quarter banking results are a positive sign for the health of the biggest players in U.S. 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 and posted a net profit of $14 billion in the fourth quarter as a post-election environment of lower interest rates and market volatility proved profitable for the bank.

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

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

Citi (C) reported a profit of $2.9 billion in the fourth quarter of 2024, compared to a loss of $1.8 billion in the fourth quarter of 2023. This was “primarily due to higher revenues, lower expenses and lower credit costs,” according to a press release. Citigroup shares rose around 6.49%.

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

“Our top stock idea for 2025 is to go long investment banks as both M&A and AI-related IPOs are expected to boom,” Jay Hatfield, CEO and CIO at Infrastructure Capital Advisors, said in an email.

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

The 10-year Treasury yield fell slightly as the bond market digested the improvement in core inflation, highlighting how nervous some investors were about the possibility of a rise in inflation.

The drop in yields is good news for the stock market, where investors have recently feared that rising yields would pull money out of stocks and into bonds.

“Any further decline 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 reaction in bond and stock markets could fade. “These are not good numbers,” Brusuelas said of the inflation report. “The bond market is very turbulent at the moment. And they tend to overreact.”

After an underwhelming jobs report on Friday, Wall Street adjusted its expectations for fewer Fed rate cuts in 2025 than previously expected. Nevertheless, there is anything but consensus among the major banks.

Michael Gapen, chief U.S. economist at Morgan Stanley, said in a note Wednesday that he believes Wednesday’s inflation report is consistent with a Fed rate cut in March.

“Weaker inflation should give the Fed more confidence that the 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 reading reduces the risk of impending hikes…But it does not change our view that the Fed’s rate-cutting cycle is over,” Aditya Bhave, senior U.S. economist at Bank of America Global Research, said in a note Wednesday.

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

The price of Brent crude, the global oil benchmark, rose more than 3% to over $82 a barrel, reaching its highest price since August 2024. Futures for WTI crude, the U.S. benchmark, rose about 3, 65% and briefly exceeded $80 a barrel for the first time since August. Oil prices have risen significantly since the end of 2024, a rally that could raise gasoline prices significantly and stoke inflation concerns.

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

Quarterly results from Bank of America (BAC), Morgan Stanley (MS) and others are expected on Thursday.