U.S. Financial Markets Record Significant Gains

As of January 15, 2025, U.S. financial markets are experiencing significant gains, driven by favorable inflation data and robust earnings reports from major banks.

The S&P 500 has risen by 1.7%, the Dow Jones Industrial Average by 1.6%, and the Nasdaq Composite by 2.2%. These increases are attributed to a December report indicating that overall inflation climbed to 2.9%, while core inflation, excluding food and energy, slowed to 3.2%. This suggests that inflation may be stabilizing, potentially allowing the Federal Reserve to consider future interest rate cuts, though none are anticipated at the upcoming meeting.

In the bond market, Treasury yields have declined, with the 10-year Treasury yield dropping to 4.68%. This movement reflects investor optimism regarding the inflation outlook. Additionally, major banks such as Wells Fargo have reported better-than-expected profits, leading to significant stock price increases. For instance, Goldman Sachs and BlackRock shares have each risen by approximately 5%.

JPMorgan Chase reported a record annual profit of $58.5 billion for 2024, up 18% from the previous year. Fourth-quarter net income rose 50% to $14 billion, with EPS of $4.81, beating expectations. Revenue grew 11% to $42.77 billion, driven by a 49% jump in investment banking fees and a 21% rise in trading revenue. Shares are trading at $251.6, up 1.7% today.

Goldman Sachs reported fourth-quarter earnings of $11.95 per share, significantly surpassing analysts' expectations of $8.21. Revenue rose to $13.87 billion, driven by strong performance in investment banking and trading.

BlackRock's fourth-quarter earnings increased to $11.93 per share, beating estimates, with revenue jumping to $5.68 billion. The firm also reported a record $11.6 trillion in assets under management with a stock price totalling $1,007.43 (+$44.26; a 4.60% increase).

Wells Fargo reported fourth-quarter earnings of $1.43 per share, slightly ahead of expectations, with a 6.3% increase in stock price following the announcement.

The significant gains in U.S. financial markets on January 15, 2025, are primarily driven by two factors:

1. Favorable Inflation Data

• Lower Inflation Rates: December's Consumer Price Index (CPI) report revealed that inflation climbed to 2.9%, while core inflation (excluding volatile food and energy prices) slowed to 3.2%. These figures indicate that inflation is moderating and nearing the Federal Reserve's target of around 2%.

• Implication for Interest Rates: Lower inflation reduces the pressure on the Federal Reserve to continue aggressive interest rate hikes. While no immediate rate cuts are expected, the stabilization of inflation creates optimism about a more supportive monetary policy environment in the future.

  
  

2. Robust Earnings from Major Banks

• Better-than-Expected Earnings: Major financial institutions like JPMorgan Chase, Goldman Sachs, and BlackRock reported strong fourth-quarter earnings. For example:JPMorgan's net income rose by 50% to $14 billion, with earnings per share exceeding expectations.Goldman Sachs and BlackRock posted significant revenue and earnings growth, reflecting strong performance in investment banking and asset management.

• Resurgence in Market Activity: Increased deal-making, trading revenues, and investment banking fees contributed to these robust earnings, signaling that financial markets are regaining strength after prior economic uncertainty

  
  

Overall, the combination of positive inflation data and strong corporate earnings is contributing to a bullish sentiment in the U.S. financial markets today.

Photo by: John Minchillo/AP. Trader Patrick King works the floor at the New York Stock Exchange