The market's "fear gauge" - the VIX - has seen its biggest decline this year as risk-takers resurface. Goldman Sachs' basket of loss-making technology companies rose 3.2%, while a group of the most shorted stocks rose 3.8%. Bitcoin is hovering near $100,000.

The 10-year Treasury yield fell 14 basis points to 4.65%. The Bloomberg Dollar Spot Index fell 0.2%. Oil prices were higher even as news emerged that Israel and Hamas had agreed to a ceasefire that would at least temporarily halt the war in Gaza.

At the very least, the latest inflation data is sparking some short covering, said BOK Financial's Steve Wyett.

"The market is breathing a sigh of relief that potential 'nosebleed' rates are off the table for the time being and that the bond market will not dampen the sharp gains in stocks over the past two years," said John Kershner, who works at Janus Henderson Investors.

Evercore's Krishna Guha said the CPI reinforced the view that markets have "overtraded" the inflation story with limited new information since the start of the year , so one should take risks.

"This reinforces the base case for two Fed cuts and keeps the possibility of a March rate cut alive," he noted.

Ellen Zentner of Morgan Stanley Wealth Management said Wednesday's consumer price index won't change expectations for a pause in interest rate hikes later this month, but it should curb some talk about a possible rate hike by the Federal Reserve.

"Judging from the initial reaction from the market, investors appear to be breathing a sigh of relief after months of rising inflation data."

The fact that the data were largely in line with expectations came as a relief to the market, said Rajeev Sharma of Key Wealth.

"However, the consistent inflation data was not enough for the Fed to forget about the strength in the job market, which in turn was not enough for markets to start pricing in more rate cuts in 2025," Sharma famously said.

The so-called core consumer price index, which excludes food and energy costs, rose 0.2% in December. This marks the first rate cut in six months. Compared with a year ago, this was an increase of 3.2%. That's still above the Fed's 2% target.

“We continue to think the Fed can easily remain on hold for now, waiting for more data and clarity on fiscal policy,” said PIMCO’s Allison Boxer. “We expect this will be Fed Chairman Jerome Powell Message sent out.” is intended to be communicated at the January meeting. "

Fed's Beige Book points to small to moderate growth at year-end

Easing consumer prices could help restart conversations that inflation progress has resumed after months of gains, but officials will need to see a series of softer data to be convinced. Lingering price pressures contributed to a sharp sell-off in global bond markets and raised concerns that the Federal Reserve was easing policy too quickly late last year.

New York Fed President John Williams expressed confidence that inflation will continue to subside but did not offer any hints on the timing of further rate cuts. Richmond Governor Tom Barkin said the new data showed continued progress in lowering inflation but that interest rates should remain restrictive. Chicago Fed President Austen Goolsby said the data supported his expectations for easing price pressures.

"This is certainly not enough for the Fed to prompt a rate cut in January," said Seema Shah, chief global strategist at Principal Asset Management. "However, if today's data is accompanied by another weak consumer price index (CPI) number next month and weaker employment numbers, a March rate cut may even be back on the table."

Shah also noted that perhaps the key takeaway is that the market is likely to "get hammered" over the next few data releases as investors seek a narrative they can feel comfortable with within a few days.

Solita Maselli of UBS Global Wealth Management said a Fed rate cut is still on the table as inflation should slow in the coming months.

“At current yield levels, the strength of the economy remains supportive of corporate earnings growth,” she noted. “While volatility may make for an uncomfortable ride before the S&P 500 hits our year-end target of 6,600, But we expect the equity bull market to continue and maintain our 'attractive' rating on U.S. equities."

Nationwide's Mark Hackett said the encouraging inflation data "put bulls on the sidelines".

"Equity investors have become increasingly sensitive to moves in the bond market, with a heightened focus on interest rates, inflation and Fed policy," Hackett said. "The focus will now turn to earnings, which has been a headwind in recent quarters. , as we enter earnings season with higher expectations, increasing the likelihood of a positive surprise this earnings season."

Company Highlights:

• Goldman Sachs Group Inc. stock traders had their best year on record, with results beating expectations.

• Traders at JPMorgan Chase & Co. posted their biggest ever gains in the fourth quarter, driven by volatility related to the U.S. election in November.

• Citigroup said it would buy back $20 billion worth of shares over the next few years, freeing up billions of dollars in excess capital the bank has been holding to meet key shareholder demands.

• Wells Fargo's fourth-quarter expenses fell 12% as Chief Executive Officer Charlie Scharf continued to cut headcount as part of a broader effort to cut costs and reshape the bank. The company's stock price rises.

• BlackRock Inc. has attracted a record $641 billion in client cash each year, underscoring the company's growing stake in public assets and its leadership position as it consolidates billions of dollars in acquisitions and reshapes its leadership position. Global reach in private assets.

• Bank of New York Mellon's fourth-quarter profit beat analysts' expectations as a long period of higher interest rates boosted profit margins.

• Southwest Airlines was sued by the U.S. Department of Transportation for allegedly violating regulations requiring airlines to create and meet realistic flight schedules.

• A leading member of Congress says the merger of CBS parent Paramount Universal and film and television producer Skydance Media should be scrutinized by federal authorities because of the involvement of China's Tencent Holdings Ltd., which was recently included in the U.S. Military blacklist.

• NetApp Inc. has agreed to sell a portfolio of cloud software assets it has acquired in recent years to Thoma Bravo-backed Flexera.

• Airbus Chief Executive Guillaume Faury said engine problems plaguing many of its narrow-body planes will last into the first half of the year and beyond, leaving the European plane maker as it grapples with ongoing supply chain constraints. At the same time, its outlook has become more complex.

• Pfizer Inc. sold about 700 million shares of Haleon Plc, further trimming its stake in the Sensodyne toothpaste maker.

Main events this week:

• The European Central Bank releases minutes of its December policy meeting on Thursday

• Bank of America and Morgan Stanley report earnings on Thursday

• U.S. jobless claims, retail sales, import prices, Thursday

• China Friday GDP, real estate prices, retail sales, industrial production

• Eurozone consumer price index on Friday

• U.S. housing starts, industrial production on Friday

Some major trends in the market:

stock

• As of 4 p.m. New York time, the S&P 500 was up 1.8%

• The Nasdaq 100 rose 2.3%

• The Dow Jones Industrial Average rose 1.7%

• MSCI World Index rose 1.7%

• Bloomberg Magnificent 7 Total Return Index rose 3.7%

• Russell 2000 index rose 2%

• The KBW Bank Index rose 4.1%

currency

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro fell 0.1% to $1.0296

• Sterling rises 0.2% to $1.2242

• Japanese yen rises 1% to 156.45 against the dollar

cryptocurrency

• Bitcoin rises 3.3% to $99,583.06

• Ethereum rises 6.8% to $3,434.38

bonds

• The 10-year Treasury yield fell 14 basis points to 4.65%

• German 10-year bond yields fell 9 basis points to 2.56%

• UK 10-year government bond yields fell 16 basis points to 4.73%

commodity

• West Texas Intermediate crude rose 3.9% to $80.53 a barrel

• Spot gold rose 0.7% to $2,696.67 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Lu Wang, Natalia Kniazhevich, Sujata Rao, Margaryta Kirakosian, Julien Ponthus, and Winnie Hsu.

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