Wall Street gains as inflation data boosts Fed rate-cut hopes

By Johann M Cherian and Ankika Biswas

(Reuters) - Wall Street's main indexes climbed on Friday as a softer-than-expected inflation report boosted hopes of an early start to interest-rate cuts, while investors assessed a mixed bag of earnings reports from major lenders.

The S&P 500 breached its record closing high of 4,796.56 for a second day in a row, and is now about less than 1% away from its all-time high of 4818.62 points. All the three major indexes are poised for weekly gains.

Friday's data showed U.S. producer prices unexpectedly fell in December amid a decline in cost of goods, while prices for services were unchanged.

"It was a good report, it alleviates some of the concerns about inflation," said Robert Pavlik, senior portfolio manager at Dakota Wealth.

The data brought some respite after Thursday's hotter-than-expected consumer inflation print.

Following the latest data, traders' expectations for a 25-basis-point rate cut in March rose to nearly 78% from 66.3%, as per the CME Group's FedWatch Tool.

Meanwhile, investors also assessed bank earnings reports to get a better picture of the health of corporate America.

Bank of America slipped 0.9% after its fourth-quarter profit shrank as the lender took $3.7 billion in one-off charges.

Wells Fargo beat profit expectations on cost cuts, but its warning that 2024 net interest income could be 7% to 9% lower year-on-year sent its shares down 1.5%.

JPMorgan Chase added 1.4% after reporting its best ever annual profit and forecasting higher-than-expected interest income for 2024.

Citigroup gained 2.2%, even after an $1.8 billion fourth-quarter loss. The lender also expects to further reduce its headcount.

"The banks are very well capitalized, but are also going through the machinations of dealing with an inverted yield curve, less capital markets activity, likely less mortgage loan activity and just going through you know the aftershocks of the pandemic," said Art Hogan, chief market strategist at B Riley Wealth.

The banking sector faced its worst turmoil since the 2008 financial crisis in March 2023, but finished the year with a 7% gain on hopes that the Federal Reserve could commence interest rate cuts in 2024.

Limiting gains on the Dow, UnitedHealth fell 3.2% on higher-than-expected medical costs. The health insurer, however, posted upbeat fourth-quarter profit.

At 9:49 a.m. ET, the Dow Jones Industrial Average was up 48.50 points, or 0.13%, at 37,759.52, the S&P 500 was up 20.05 points, or 0.42%, at 4,800.29, and the Nasdaq Composite was up 71.06 points, or 0.47%, at 15,041.24.

Delta Air Lines fell 6.8% after the carrier scaled down its annual profit outlook.

Tesla declined 1.3% after trimming prices of some new China models and plans to suspend most car production at its factory near Berlin.

Advancing issues outnumbered decliners by a 6.87-to-1 ratio on the NYSE and a 3.86-to-1 ratio on the Nasdaq.

The S&P index recorded 35 new 52-week highs and no new lows, while the Nasdaq recorded 45 new highs and 24 new lows.

(Reporting by Johann M Cherian and Ankika Biswas in Bengaluru; Editing by Shinjini Ganguli)