Stocks and S&P 500 Rally Boosted by Positive CPI Data

• SP 500 rises after CPI below expectations.
• Inflation slows but remains above the Fed's target.
• Trump's policies could impact future inflation.

U.S. stocks saw a significant rise last Wednesday, with investors encouraged by robust bank earnings and the latest update of the Consumer Price Index (CPI), which came in below expectations for December. This data suggests less intense inflationary pressure than expected, fueling optimism in the markets.

The SP 500 and Dow Jones Industrial Average both rose more than 1,4%, while the Nasdaq Composite gained more than 1,7%. The premarket report had already indicated a positive trend, when the CPI showed progress toward the Federal Reserve's 2% inflation target, with an increase of just 0,2% in December on a core basis - which excludes volatile food and energy prices.

According to Bureau of Labor Statistics , December marked the first slowdown in core CPI since July, a clear indication that inflation may be starting to ease. Year-on-year, consumer prices rose 3,2%, showing a slight reduction compared to the previous period.

This new economic metric is especially relevant because it will be one of the last ones assessed by the Federal Reserve before its next interest rate meeting. The market response was immediately positive, with the 10-year Treasury yield falling 12 basis points.

“Markets reacted positively this morning for good reason: the Federal Reserve is comfortable watching the CPI rise temporarily if that rise does not affect the core CPI, and that is what happened in December,” commented one financial analyst.

The situation is further complicated by President-elect Donald Trump’s proposed inflationary policies, which include high tariffs on imported goods and tax cuts for corporations. Such measures could significantly affect the inflation outlook and future monetary policy decisions.

Cryptocurrency Market Impact: Bitcoin Surpasses $99K

The stock market's reaction to the positive CPI data had a significant echo in the cryptocurrency market, particularly in the Bitcoin price , which reached the US$ 99 thousand mark with a 4% increase on the day. This appreciation is a direct reflection of the adjusted expectations for the Federal Reserve's monetary policy, in the face of more controlled inflation.

With inflation showing signs of slowing and remaining below expectations, speculation is growing that the Federal Reserve may choose to cut interest rates more times throughout 2025. Such cuts would be an attempt to stimulate the economy by making money more accessible and cheaper for loans and investments.

For the cryptocurrency market, lower interest rates have a twofold positive impact. First, it reduces the opportunity cost of holding non-fixed-yield currencies like Bitcoin, compared to investments that benefit from higher interest rates, such as government bonds. Second, lower interest rates may encourage investors to seek out higher-risk and higher-return assets, such as cryptocurrencies, increasing demand and, consequently, the prices of these assets.

This dynamic suggests a potentially bullish outlook for Bitcoin and other cryptocurrencies, as investors may view these digital assets not only as a store of value but also as a viable option for capital growth in a low interest rate environment. Thus, the correlation between monetary policy and the cryptocurrency market is reaffirmed, highlighting the sensitivity of this market to global macroeconomic conditions.