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Wall Street Rises on Positive Inflation Data and Robust Bank Earnings


Last Updated: 16th January 2025 - 12:52 pm
U.S. stocks surged on Wednesday, driven by optimism from a positive update on inflation and strong earnings reports from major U.S. banks, pushing indexes toward their best performance in two months.
In early trading, the S&P 500 climbed 1.5%, the Dow Jones Industrial Average increased by 652 points (1.5%), and the Nasdaq composite rose by 1.7%.
Bond market movements complemented the rally, with Treasury yields dropping significantly following the latest inflation report. The data revealed a rise in overall inflation to 2.9% in December from 2.7% in November. However, core inflation—which excludes volatile food and energy prices—slowed to 3.2%, slightly below economists' expectations of 3.3%, according to FactSet.
This core inflation measure, closely monitored by the Federal Reserve, alleviated concerns that recent progress on inflation might have stalled, bolstering hopes for a continued downward trend toward the Fed’s 2% target.
While Wednesday’s data is unlikely to prompt the Fed to reduce its main interest rate at its upcoming meeting, analysts suggest it may pave the way for rate cuts later in the year—possibly as early as March—if further data indicates inflationary pressures are easing.
“Markets are likely to experience volatility over upcoming data releases as investors search for a consistent narrative,” said Seema Shah, Principal Asset Management’s chief global strategist.
Wall Street has been turbulent in recent weeks as traders speculate on the Fed’s potential interest rate decisions for 2025. Lower rates would stimulate the economy by reducing borrowing costs and boosting investment prices, though it could also rekindle inflationary pressures.
In the bond market, yields declined amid rising expectations of future rate cuts. The 10-year Treasury yield fell to 4.65% from 4.79%, marking a notable drop after reaching as high as 4.79% on Tuesday. Similarly, the two-year Treasury yield, more sensitive to short-term Fed policy expectations, decreased to 4.26% from 4.37%.
Bank stocks were among the top performers as several major institutions exceeded analysts' profit expectations for the fourth quarter of 2024. Shares of Wells Fargo rose 4.2%, Citigroup gained 4.3%, and Goldman Sachs advanced 4.6%.
Higher Treasury yields, which have increased bond interest payments since September, have pressured stock prices by drawing investors toward bonds. As a result, equities typically require either lower prices or stronger corporate earnings to remain attractive.
The positive U.S. inflation data also buoyed global stock markets by easing pressure on bond markets worldwide. In Europe, the FTSE 100 in London rose 0.8%, while indexes in France and Germany increased 0.9% and 1.6%, respectively. In Asia, markets were more subdued, with South Korea's Kospi nearly unchanged as trading ended before the U.S. inflation report was released.
In South Korea, political developments also weighed on markets. Authorities detained impeached President Yoon Suk Yeol on Wednesday over his involvement in a failed martial law declaration last month.
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