Why stocks and bonds are on a tear today

US stocks rallied sharp on Wednesday as traders took in encouraging inflation data and strong earnings from Wall Street banks.

The ongoing sell-off in bonds also got some relief, as the 10-year Treasury yield tumbled as much as 16 basis points. The move offers some relief to equity investors who have been nervously watching the 10-year note as it approaches the psychologically significant 5% threshold, which has historically been a sell signal.

The bright spot in Wednesday’s data was core inflation — which strips out food and energy prices — coming in lower than expected. It soothed investor worries of persistently high consumer prices, at least temporarily. That concern has informed a sharp run-up in bond yields, as investors have pared back expectations of rate cuts in 2025, with some even surmising a hike could be the next move.

On the bank earnings front, Goldman Sachs, JPMorgan, and BlackRock results all came in above expectations, fueled by strong trading-desk performance.

Here’s where US indexes stood shortly at 2 p.m. on Wednesday:

S&P 500: 5,946.75, up 1.8%
Dow Jones Industrial Average: 43,235.40, up 1.7% (717 points)
Nasdaq composite: 19,487.34, up 2.3%
10-year Treasury yield: 4.66 (down 13 basis points)
Investors are largely expecting the Fed to pause its rate-cutting cycle this month. But the probability that the Fed will cut interest rates by 25 basis points twice this year rose on Wednesday, with markets seeing a 30% chance rates will end the year 50 basis points lower from current levels, according to the CME FedWatch tool, up from a 24% probability as of yesterday.

“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,” Skyler Weinand, the chief investment officer of Regan Capital, said in a statement. “Even if the Fed cuts rates in 2025, it’s likely to be six to eight months away, as we are still too far from the Fed’s inflation target for the Fed to continue their rate cut march anytime soon,”

“The Fed can be patient and the economy is healthy,” added Scott Helfstein, the head of investment strategy at Global X. “This is not a time to run for the hills,”

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