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Wall Street Has Best CPI Day Since at Least 2023: Markets Wrap

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(Bloomberg) — Wall Street breathed a sigh of relief after a sudden slowdown in inflation sent stocks higher and bond yields lower, boosting bets that the Federal Reserve is on track to continue cutting interest rates this year.

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Stocks erased their losses for 2025, with the S&P 500 rising about 2% in its biggest gain since the aftermath of the US election. The rise in Treasuries sent 10-year yields down about 15 basis points – alleviating fears that a 5% interest rate is on the horizon. Commodity prices rose, with oil reaching $80 per barrel. The coordinated advance across assets was the best CPI day since at least late 2023, according to data compiled by Bloomberg.

The US consumer price index rose less than expected in December, revitalizing bets that the Federal Reserve will cut interest rates sooner than previously thought. Swap traders returned to fully pricing in rate cuts by July. It was a quick turnaround after Friday’s jobs data prompted officials to bet they would be able to resume policy easing only in September or October. Not to mention the bets on hiking.

“Extreme sentiment led to a strong post-CPI move,” said Steve Sosnick of Interactive Brokers. “Today’s rises in stocks and bonds were directly driven by a better-than-expected month-on-month core CPI reading, but the magnitude of the rises reflects the tense sentiment prevailing in the markets.”

For Tina Adatia of Goldman Sachs Asset Management, while the latest CPI release is unlikely to be enough to put a January rate cut on the table, it strengthens the argument that the Fed’s cutting cycle has not yet run its course. .

“The market will be encouraged by lower core inflation, which should relieve some of the pressure on equity and bond markets, both of which have had a poor start to the year due to inflation concerns and concerns that the Fed won’t just stop cutting rates,” said Chris Zaccarelli of Northlight Asset Management: “Interest rates, however, could reverse course and start raising them.”

The Standard & Poor’s 500 rose 1.8%. The Nasdaq 100 index rose 2.3%. The Dow Jones Industrial Average rose 1.7%. Bloomberg’s “Magnificent Seven” gauge of giant companies rose 3.7%. The Russell 2000 advanced 2%. The KBW Bank Index rose 4.1% at the start of Citigroup Inc.’s earnings season. and Goldman Sachs Group Inc. and Wells Fargo & Co. and JPMorgan Chase & Co.

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