On January 15, 2025, the U.Sstock market experienced a notable surge, contrasting with the previous days of erratic trading patternsThis movement marked a significant recovery, as the three major stock indices managed to erase the losses they had incurred earlier in the year.

The Dow Jones Industrial Average (DJIA) climbed by 1.65%, boasting a year-to-date increase of 1.59%, ultimately closing at 43,221.55 pointsMeanwhile, the Nasdaq Composite Index rose by 2.45%, accumulating a year-to-date rise of 1.04% to end at 19,511.23 pointsThe S&P 500 Index also saw gains, increasing by 1.83% with a year-to-date gain of 1.16%, closing at 5,949.91 points.

The primary catalyst behind the bullish trend in U.S

stocks was the latest inflation data, which fell in line with expectations, hinting at a potential shift in the Federal Reserve's formerly hawkish stance.

In December 2024, the annual inflation rate in the U.Srose for the third consecutive month, reaching 2.9%, slightly above November's 2.7%, and aligning with market expectationsThe increase in inflation towards the end of the year can be attributed to a low comparative base from the previous year, particularly in energy prices, especially refined petroleum products like gasoline, heating oil, and natural gasA glance at the price trends reveals that the level of refined oil prices at the end of 2023 and 2024 was comparatively similar, which contributed to a rise in the inflation rate to a certain extent.

When excluding the more volatile categories of food and energy, the core annual inflation rate for December stood at 3.2%, which surprisingly fell below the market's predicted 3.3% and the preceding three months

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The price increases in the housing sector, which had been substantial, moderated to 4.6%—the smallest increase since January 2022. A monthly analysis shows that the core Consumer Price Index (CPI) increased by 0.2% in December, down from 0.3% in November and again below market expectations.

This unexpected dip in the inflation rate reignited market optimism regarding the Federal Reserve's potential willingness to adopt a more aggressive approach to interest rate cuts in 2025. Current expectations indicate a greater likelihood of two cuts (to a range of 3.75%-4.00%), three cuts (to a range of 3.50%-3.75%), or even a drop to between 3.25%-3.50%, in contrast to just a week prior when the predominant sentiment anticipated only one cut this year, from the current 4.25%-4.50% range down to 4.00%-4.25%.

With an uptick in rate cut speculations, market sentiment grew increasingly optimistic about economic prospects

As the cost of borrowing loosened and capital became less expensive, investors felt emboldened to take risks, which logically translated into rising equity prices and contributed to the overall uptrend in U.Sstocks.

Interestingly, this rally was not solely driven by tech giants such as Tesla (TSLA) and Nvidia (NVDA), but also by substantial gains in bank stocksThis was largely attributed to major banks, which had announced their fourth-quarter results for December that exceeded expectations.

The largest commercial bank in the U.S., JPMorgan Chase (JPM), saw its stock rise by 1.97%, closing at $252.35, with a market capitalization of $710.5 billionThe bank had just reported quarterly and annual results that surpassed estimates and noteworthy was its indication of having about $35 billion in "excess funds," which management suggested could be utilized to satisfy or potentially increase regulatory requirements

Market analysts widely anticipated that this may lead to share buybacks.

Goldman Sachs (GS) reported a more-than-doubling of its quarterly net profit to $4.11 billion, prompting a stock rise of 6.02% and a market capitalization of $190.2 billionCitigroup (C) also enjoyed a successful quarter, with profits reaching $2.86 billion, alongside a proposed $20 billion share buyback plan, which contributed to a stock increase of 6.49%, elevating its market capitalization to $148.03 billionWells Fargo (WFC), the fourth largest commercial bank by assets, noted a 47% increase in profits to $5.08 billion, thanks to stable growth in investment banking revenues, leading to a stock price increase of 6.69% and a market capitalization of $252.87 billion.

BlackRock (BLK) also delivered a stronger-than-expected performance in the fourth quarter of 2024, with adjusted net profits increasing by 29% to $1.874 billion

The firm recorded a yearly net inflow of $641 billion, setting a record, which resulted in a stock surge of 5.19% and a market capitalization of $156.92 billion.

Despite the rising euphoria in the U.Sstock market, the expectation of interest rate cuts had a slight dampening effect on the dollar's exchange rateThe dollar index fell marginally yet remained above the level of 109. Meanwhile, inflation data released by the UK also surprisingly decreased, alleviating investor concerns about inflationary pressures thereCombined with the European Central Bank potentially needing to lower rates to stimulate economic growth, this played to the advantage of the dollar's relative performanceOn the flip side, the Bank of Japan indicated a possible discussion on raising interest rates in the upcoming policy meeting, which led to a strengthening of the yen, slightly dragging the dollar index down.

After easing inflation pressures, gold prices surged, currently exceeding $2,690 an ounce.

The inflation data for December 2024 in the United States fell short of high expectations, which subsequently heightened the market's expectations for possible interest rate cuts by the Federal Reserve this year