Stock futures surged and bond yields fell following a report showing a slowdown in consumer prices, reigniting speculation that the Federal Reserve could still lower interest rates in 2025. This positive market movement came after the release of the latest consumer price index (CPI) data, which suggested that inflation may be cooling down.

Key Market Movements

S&P 500 futures jumped 1.5%, signaling a strong start for U.S. equities. The yield on 10-year Treasuries dropped by 10 basis points to 4.69%, as investors shifted towards safer assets amid expectations of lower interest rates. The Bloomberg Dollar Spot Index also slipped by 0.5%, further reflecting market optimism.

Swap traders are now pricing in a potential rate cut by July, a shift from the previous expectation of September, suggesting that investors are increasingly confident in a more dovish stance from the Federal Reserve.

Consumer Price Index Shows Slower Inflation

The latest CPI data showed that the core consumer price index—excluding food and energy—rose by just 0.2% in December, a slowdown from the 0.3% increases seen over the past four months. On a year-over-year basis, the core CPI rose 3.2%, down from the previous months’ pace. This softer-than-expected CPI print has provided some relief to markets, particularly after the strong employment numbers reported last Friday, which had raised concerns about persistent inflation.

Skyler Weinand, Chief Investment Officer at Regan Capital, noted, “Wednesday’s softer-than-expected CPI print offers some relief, especially after last Friday’s hot employment numbers, that the Fed may be able to still cut interest rates in 2025.” This renewed optimism could be a signal that inflation is under control, allowing the Fed to ease monetary policy in the coming months.

Corporate Earnings Shine

Several major companies also reported stronger-than-expected fourth-quarter earnings, helping to drive market optimism.

JPMorgan Chase exceeded analysts’ expectations, posting a profit of $4.81 per share on revenue of $43.74 billion. The strong performance was driven by solid results from its fixed income and investment banking divisions. Shares rose by more than 1% following the report.

Quantum Computing Stocks saw a significant boost after Microsoft announced its new Quantum Ready program, signaling the beginning of a “reliable quantum computing era.” Rigetti Computing surged 8%, D-Wave Quantum soared more than 17.5%, and IonQ gained 4.8%, as investors flocked to this promising sector.

Wells Fargo also reported strong fourth-quarter earnings, beating Wall Street’s expectations with adjusted earnings of $1.42 per share, surpassing the consensus estimate of $1.35 per share. The bank’s shares rose 3.2% after the report, and Wells Fargo forecasted net interest income growth of 1%-3% in 2025.

Goldman Sachs saw a 2.1% jump in its stock price after reporting earnings of $11.95 per share on revenue of $13.87 billion, far exceeding analyst expectations of $8.22 per share on revenue of $12.39 billion. The bank benefited from a rebound in Wall Street deals and stronger-than-expected trading revenue.

BlackRock, the world’s largest asset manager, also saw its stock rise by more than 3.7%. The company reported fourth-quarter earnings of $11.93 per share on revenue of $5.68 billion, surpassing expectations of $11.19 per share on revenue of $5.68 billion.

Citigroup rounded out the list of strong earnings reports, with shares gaining over 3% after the bank posted fourth-quarter earnings of $1.34 per share on revenue of $19.58 billion, surpassing analyst expectations of $1.22 per share on revenue of $19.49 billion.

With the recent CPI data signaling a potential cooling of inflation and strong earnings reports from major corporations, investors are growing increasingly optimistic that the Federal Reserve could lower interest rates sooner than expected. As we head into 2025, markets will likely continue to monitor economic indicators and corporate performance closely to gauge the Fed’s next move.