Market Rally Fueled by Cooling Inflation and Strong Bank Earnings, Says Wells Fargo’s Sameer Samana
Bank stocks surged on Wednesday as investors welcomed the kickoff of earnings season and found reassurance in fresh data indicating a slowdown in core inflation.
“The market was primed to rally,” explained Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, during a phone interview. According to Samana, investors had been on edge due to rising Treasury yields, which recently spooked the stock market. However, Wednesday’s better-than-expected financial results from major Wall Street banks helped lift sentiment.
Bank Stocks Lead the Charge
Financial stocks were among the top performers in the S&P 500’s 11 sectors, with shares of Citigroup Inc. and Wells Fargo & Co. each jumping over 6%. JPMorgan Chase & Co. and Goldman Sachs Group Inc. also reported strong quarterly earnings, further fueling the rally.
Sector-focused ETFs reflected this bullish momentum. The Invesco KBW Bank ETF climbed 4.1%, the SPDR S&P Bank ETF gained 2.6%, and the SPDR S&P Regional Banking ETF rose 2.5%. The S&P 500’s financial sector saw its biggest gain since November 6, 2020, surging 2.6%, according to FactSet.
Wall Street benefited from heightened trading activity as investors rebalanced portfolios in response to fourth-quarter economic data, Federal Reserve communication, and jobs market updates, said Samana.
Inflation Eases, Boosting Market Confidence
The rally also gained momentum following the Bureau of Labor Statistics’ report on the Consumer Price Index (CPI). December inflation rose 0.4% month-over-month for a 2.9% annual rate, while core inflation, which excludes food and energy, cooled to 0.2%, down from 0.3% in November. Core inflation’s annual rate eased slightly to 3.2%.
Samana noted that cooling inflation helped allay fears of persistently high Treasury yields. The yield on the 10-year Treasury note dropped 13.4 basis points to 4.653% on Wednesday, reversing its climb to recent highs earlier in the week.
Broader Market Gains
The inflation data sent U.S. stock futures higher before the opening bell. JPMorgan, in particular, saw a pre-market boost and ended the day with a 2% gain, while Goldman Sachs surged 6%.
The broader U.S. stock market closed sharply higher. The S&P 500 gained 1.8%, the Dow Jones Industrial Average rose 1.7%, and the tech-heavy Nasdaq Composite soared 2.5%.
Louis Navellier, chief investment officer at Navellier, summarized the day’s optimism: “Core CPI came in a tick light. Yields fell meaningfully, and stocks surged.”
Samana added that he anticipates only one potential Federal Reserve interest rate cut in 2025, as the U.S. economy remains resilient and inflation could remain around 3%.
Wednesday’s combination of positive earnings, cooling inflation, and falling yields provided a much-needed boost to market sentiment, marking a strong start to the year for the financial sector and broader equities.
