MW Why S&P 500's financials sector is on pace for its best day since early November

By Christine Idzelis

'The market was primed to rally,' says Wells Fargo's Sameer Samana

Bank stocks were broadly rallying Wednesday as investors cheered the kickoff of earnings season and expressed a sigh of relief over fresh data showing a cooling in core inflation.

"The market was primed to rally," as investors have been worrying that inflationary pressures risk pushing Treasury yields even higher after their recent rise spooked the stock market, said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, in a phone interview. Bank stocks in particular were surging as Wall Street trading revenues appeared stronger than expected in the fourth quarter based on Wednesday's rollout of results, he said.

Financial stocks had among the biggest gains among the S&P 500 's 11 sectors in afternoon trading Wednesday, as shares of $Citigroup Inc(C-N)$. (C) and Wells Fargo & Co. $(WFC)$ each jumped more than 7%, according to FactSet data, at last check. Citi, Wells Fargo, JPMorgan Chase & Co. and Goldman Sachs Group Inc. all reported their latest quarterly earnings results on Wednesday.

The Invesco KBW Bank ETF KBWB, which holds banking stocks, was up more than 4% in afternoon trading, while the SPDR S&P Bank ETF KBE climbed 2.4% and the SPDR S&P Regional Banking ETF KRE gained a sharp 2.2%, according to FactSet data, at last check. The S&P 500's financials sector XX:SP500.40 was up 2.4%, putting it on pace for its biggest gain since Nov. 6 - the day after the U.S. presidential election, when stocks rallied following the victory of Donald Trump.

Wall Street benefited from increased trading activity as investors repositioned their books after the U.S. election and other market-moving events in the fourth quarter, said Samana, pointing to communication from the Federal Reserve and fresh data on the jobs market as examples.

Samana said he has "penciled in" just one potential interest-rate cut by the Fed in 2025, as the U.S. economy is doing well and inflation may stay sticky around 3%. The Bureau of Labor Statistics said Wednesday that U.S. inflation, as measured by the consumer-price index, rose 0.4% in December for a year-over-rate of 2.9%.

Read: After CPI inflation data, fed-funds futures point to potential rate cut in June

Investors appeared relieved that so-called core inflation, which excludes food and energy prices, cooled in December. Core inflation slowed to 0.2% last month, from 0.3% in November, with its annual rate slowing slightly to 3.2%, data from the consumer-price index showed.

Stock futures were up after the CPI report was released Wednesday at 8:30 a.m. Eastern time, suggesting the market was set to rally. JPMorgan shares got a boost from the CPI inflation reading before the U.S. stock market's opening bell.

JPMorgan's stock $(JPM)$ was up 2% in Wednesday afternoon trading, while Goldman Sachs $(GS)$ was surging almost 6%, FactSet data show, at last check.

The U.S. stock market was broadly rallying on Wednesday, after the CPI inflation report spurred a drop in Treasury yields. The S&P 500 SPX was up 1.8% on Wednesday afternoon, while the Dow Jones Industrial Average DJIA gained 1.7% and the technology-heavy Nasdaq Composite COMP jumped 2.4%, according to FactSet data, at last check.

The yield on the 10-year Treasury note BX:TMUBMUSD10Y was down about 14 basis points Wednesday afternoon at around 4.65%, FactSet data show, at last check. That's after rising on Monday to its highest rate since Oct. 31, 2023, based on 3 p.m. Eastern time levels, according to Dow Jones Market Data.

"Core CPI came in a tick light," said Louis Navellier, chief investment officer at money-management firm Navellier, in emailed commentary on Wednesday. "Yields fell meaningfully, and stocks surged."

Read: Stocks surge on inflation data. Trump, bond yields hold key to what's next.

-Christine Idzelis

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January 15, 2025 14:47 ET (19:47 GMT)

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