S&P 500 Financials: A November-Level Comeback
Major U.S. indexes ended the day on a high note: the S&P 500 rose 1.8%, the Dow Jones Industrial Average gained 1.7%, and the Nasdaq Composite jumped 2.5%.
Cooling Inflation and Strong Bank Earnings Spark Market Rally, Says Wells Fargo’s Sameer Samana
The stock market surged on Wednesday, driven by optimism around easing inflation and upbeat bank earnings that marked the start of earnings season.
“The market was primed to rally,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, during a phone interview. Samana noted that investors had been anxious about rising Treasury yields, which had previously unsettled the market. However, Wednesday’s earnings results and inflation data helped turn the tide.
Financial Stocks Lead Gains
Bank stocks spearheaded the rally, with Citigroup Inc. and Wells Fargo & Co. both climbing over 6% by the close of trading. JPMorgan Chase & Co. and Goldman Sachs Group Inc. also posted strong earnings, further boosting sentiment.
Sector-focused ETFs reflected this momentum: the Invesco KBW Bank ETF rose 4.1%, the SPDR S&P Bank ETF gained 2.6%, and the SPDR S&P Regional Banking ETF increased by 2.5%. Overall, the financial sector of the S&P 500 climbed 2.6%, its largest one-day gain since November 6, 2020, according to FactSet.
Samana attributed the rally in financials to stronger-than-expected Wall Street trading revenues in the fourth quarter, alongside robust earnings results.
Inflation Data Calms Market Nerves
The rally was further fueled by the December Consumer Price Index (CPI) report from the Bureau of Labor Statistics, which showed inflation rising 0.4% month-over-month for a year-over-year rate of 2.9%. Core inflation, which excludes volatile food and energy prices, slowed to 0.2% in December from 0.3% in November. Its annual rate eased slightly to 3.2%.
The cooler inflation data provided relief to investors worried about persistently high Treasury yields. On Wednesday, the yield on the 10-year Treasury note dropped 13.4 basis points to 4.653%, reversing its recent climb to multiyear highs.
Broader Market Rally
Stock futures rallied ahead of the market open following the CPI report, lifting investor confidence. JPMorgan Chase saw a pre-market boost and finished the day up 2%, while Goldman Sachs surged 6%.
Major U.S. indexes ended the day on a high note: the S&P 500 rose 1.8%, the Dow Jones Industrial Average gained 1.7%, and the Nasdaq Composite jumped 2.5%.
Louis Navellier, chief investment officer at Navellier, commented on the market’s strong performance: “Core CPI came in a tick light. Yields fell meaningfully, and stocks surged.”
Looking Ahead
Samana remains cautiously optimistic about the market outlook. He expects the Federal Reserve to implement only one interest rate cut in 2025, citing a strong U.S. economy and the possibility of inflation stabilizing near 3%.
Wednesday’s gains showcased the market’s positive reaction to a mix of strong financial earnings and easing inflation, setting an encouraging tone for the new year.
