Financial Markets                      01/15 15:37

   

   NEW YORK (AP) -- U.S. stocks ripped higher Wednesday following a shot of 
adrenaline from an encouraging update on U.S. inflation. Strong profit reports 
from Wells Fargo and other big U.S. banks also helped launch indexes to their 
best day in two months.

   The S&P 500 jumped 1.8%. The Dow Jones Industrial Average rallied 703 
points, or 1.7%, and the Nasdaq composite leaped 2.5%.

   Treasury yields also eased in the bond market following the update on how 
much more U.S. households had to pay in December for eggs, gasoline, housing 
and other costs of living. The report said overall inflation accelerated to 
2.9% from 2.7% in November.

   While no one wants higher inflation, the numbers were more encouraging 
underneath the surface. After ignoring prices for food and energy, which can 
zigzag sharply from month to month, underlying inflation trends slowed to 3.2% 
in December. Economists had thought it would remain at 3.3% for a fourth 
straight month, according to FactSet.

   The Federal Reserve pays more attention to that underlying number than the 
overall figure, and it's particularly welcome following worries that 
improvements in inflation have halted and that it will be tough to get all the 
way down to the Fed's 2% target.

   Few traders expect Wednesday's data to convince the Fed to cut its main 
interest rate at its meeting later this month, as it's done at three straight 
meetings since September. But economists and analysts say it could open the 
door for cuts later in the year, maybe even in March, if more data comes in to 
show that upward pressure on inflation is abating.

   "Perhaps the key takeaway is that markets are likely to be whipsawed over 
the next few data releases as investors seek a narrative that they can be 
comfortable with for more than just a few days at a time," said Seema Shah, 
chief global strategist at Principal Asset Management.

   Wall Street has been lurching down and up for weeks as traders tear up their 
forecasts for what the Fed will do with interest rates in 2025. A further 
easing would boost the U.S. economy and prices for investments, but it could 
also give inflation more fuel.

   Traders were ebullient last year about the possibility of a string of cuts 
to rates, when they sent stocks to dozens of all-time highs, only to rein in 
their expectations more recently. The Fed itself has indicated it may cut rates 
only two times this year instead of the four it had earlier projected, and some 
traders have even considered the possibility of future hikes to rates.

   Wednesday's update quashed speculation about hikes in the near term, and 
Treasury yields eased in the bond market on growing hopes for coming cuts. The 
yield on the 10-year Treasury dropped back to 4.65% from 4.79% late Tuesday, 
which is a considerable move. It had largely been screaming higher since 
September, when it was below 3.65%.

   The two-year Treasury yield, which more closely tracks expectations for the 
Fed's upcoming actions, fell to 4.26% from 4.37%.

   On Wall Street, bank stocks helped lead the way after several reported 
stronger profits for the last three months of 2024 than analysts expected.

   Wells Fargo jumped 6.7%, Citigroup rallied 6.5% and Goldman Sachs gained 6%. 
They're among the first big U.S. companies to report their results for the end 
of 2024, and even more focus may be on them than usual.

   When Treasury yields are climbing and bonds are paying more in interest, it 
cranks up the pressure on stock prices by peeling investors away from stocks 
and into bonds. To make up for it, stock prices typically either have to fall 
or corporate profits have to rise more strongly.

   Stocks of companies that would get a big benefit from lower interest rates 
were also toward the front of the market.

   Builders FirstSource, a supplier of countertops and other building 
materials, rose 4.7%, for example. It and other housing-related companies would 
get a boost from easier mortgage rates.

   All told, the S&P 500 rose 107.00 points to 5,949.91. The Dow Jones 
Industrial Average gained 703.27 to 43,221.55, and the Nasdaq composite jumped 
466.84 to 19,511.23.

   The encouraging U.S. inflation data also helped to perk up stock indexes 
abroad by lowering the pressure on the global bond market.

   The FTSE 100 in London rallied 1.2%. U.K. markets have been under pressure 
because of a jump in bond yields amid worries about a sluggish economy and the 
country's finances.

   Indexes also rose 0.7% in France and 1.5% in Germany. They were more subdued 
in Asia, where trading closed before the release of the U.S. inflation data.

   South Korea's Kospi was nearly unchanged after law enforcement officials 
detained impeached President Yoon Suk Yeol on Wednesday in connection with his 
failed declaration of martial law last month.

   ___

   AP Writer Zimo Zhong contributed.

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