Wall Street experienced a positive close on Wednesday, with all three major stock indexes achieving their most significant daily percentage increases since November 6. This optimism stemmed from reassuring indicators of slowing inflation and robust corporate earnings.

The annual consumer price index (CPI) saw a rise of 2.9% in December, up from 2.7% in November but aligning with the average predictions from economists at Reuters. Similarly, the core rate, which excludes the unpredictable food and energy sectors, increased by 3.2%, slightly below expectations of a 3.3% rise.

The ongoing decline in core inflation has reassured investors concerned that inflation might escalate again, especially in light of recent data reflecting a resilient economy. Mastercard reported stronger holiday retail sales compared to last year, and the Labor Department announced on Friday that the U.S. added an impressive 256,000 jobs in December, with the unemployment rate dropping from 4.2% to 4.1%.

In response to this positive data, investors significantly adjusted their forecasts regarding additional Federal Reserve rate cuts. Economists at Bank of America have indicated that they think the cycle of rate cuts has concluded, with the possibility of rate hikes being more likely now.

“Core inflation isn’t on the rise, and that’s the essential takeaway,” remarked Jamie Cox, managing partner at Harris Financial Group. “Investors might have been overly concerned about inflation spiraling out of control, but the data doesn’t back that up.”

The stock market also gained momentum from impressive earnings reports by Goldman Sachs, Citigroup, and other major banks that kicked off the earnings season.

The S&P 500 index finished 1.83% higher at 5,949.91, while the Dow climbed 703.27 points (1.65%) to settle at 43,221.55. The tech-heavy Nasdaq rose by 2.45%, ending the day at 19,511.23. The benchmark 10-year yield decreased to 4.651%, down from a 14-month peak of 4.809% earlier this week.

Banks provide a boost

Major banks began the quarterly earnings season with solid results, combined with the consumer inflation report, which helped fuel the market’s rally on Wednesday, analysts noted.

“With strong quarterly results from U.S. banks, the inflation report is not hindering today’s favorable trading,” said Jochen Stanzl, chief market analyst at CMC Markets, in a statement. “We are now witnessing declining inflation rates precisely where it matters most, that is in core inflation. This is precisely what Wall Street bulls were hoping for.”

Banks that posted strong quarterly results included:

• JPMorgan Chase & Co celebrated a record annual profit in the fourth quarter.
• Wells Fargo exceeded analysts’ expectations for its fourth-quarter profit thanks to a resurgence in transaction activity boosting its investment banking sector.
• Goldman Sachs achieved its highest quarterly profit since the third quarter of 2021.
• Citigroup reported a profit in the fourth quarter, a turnaround from a loss the previous year, fueled by strong investment banking activity and announced a $20 billion stock buyback.

Additionally, investment firm BlackRock announced record assets totaling $11.6 trillion in the fourth quarter.

Shares of quantum computing firms, such as D-Wave Quantum and Rigetti Computing, surged after Microsoft’s declaration that 2025 would be the year of becoming “quantum-ready.”

Bitcoin also saw a rise in line with the market’s positive trend, increasing by 3.29% to $99,742.67 by the day’s end, marking its highest value since January 7 and moving closer to the significant $100,000 milestone.

(This story has been updated with recent information.)

Medora Lee reports on money, markets, and personal finance.