Stocks closed sharply higher yesterday after another better-than-expected inflation report. The Nasdaq came roaring back after underperforming earlier in the week, gaining 2.45% yesterday. The small-cap Russell 2000 was not far behind with 1.99%, followed by the S&P with 1.83%. But all of the major indexes were up in excess of 1.25%.

Yesterday's Consumer Price Index (CPI) retail inflation report was actually better than Tuesday's Producer Price Index (PPI) wholesale inflation report. Headline CPI was up 0.4% m/m vs. last month's 0.3% and views for the same. The y/y rate came in as expected at 2.9%, up from last month's 2.7%, but in line with estimates. The core rate (ex-food & energy) saw the monthly change at just 0.2%, which was under last month's 0.3% and the consensus for 0.3%. The y/y rate also eased, coming in at 3.2% vs. last month's 3.3% and expectations for 3.3% as well.

While there was a bit of relief after this week's CPI and PPI reports, it's not likely to change what the Fed does (or should I say not do) at their next FOMC Announcement on January 29. At the moment, Fed Funds traders, via the CME's FedWatch tool, have a 97.3% likelihood that the Fed will NOT cut rates this month.

But the odds for a possible cut on March 31 (they don't meet in February) is creeping up, and is now at 28%. And the odds for a May cut are now at 46.5%.

Adding to yesterday's upbeat tone were better-than-expected bank earnings. Before the open, JPMorgan Chase posted a positive EPS surprise of 19.4%, and gained 1.97% after the news. Wells Fargo posted a positive EPS surprise of 5.97% and added 6.69% on the day.

We also saw positive EPS surprises by Goldman Sachs of 48.1%, BlackRock by 5.86%, and Citigroup by 7.20%. They were all up following their reports by 6.02%, 5.19% and 6.49% respectively.

Today we'll hear from more banks including Bank of America, Morgan Stanley, PNC Financial and U.S. Bancorp.

Granted, earnings season doesn't officially begin until next week on Wednesday, 1/22, when Alcoa reports after the close. But unofficially earnings season has already begun and it's off to a solid start.

In other news, MBA Mortgage Applications rose 33.3% w/w with purchases up 26.9% and refi's up 43.5%.

The Empire State Manufacturing Index, however, fell to -12.6 vs. last month's upwardly revised 2.1 (from 0.2), and estimates for 1.0.

And the Beige Book report noted that 'economic activity increased slightly to moderately across the twelve Federal Reserve Districts in late November and December.'

Today we'll get Weekly Jobless Claims, Retail Sales, the Philadelphia Fed Manufacturing Index, Import and Export Prices, Business Inventories, and the Housing Market Index.

All of the major indexes are now up for the week so far. And YTD.

After a big up day like yesterday, I wouldn't be overly surprised if there's a little profit taking. But I also wouldn't be surprised if there wasn't.

The underlying factors of the economy remain bullish. Same goes for corporate profits. And for household incomes.

And there's plenty of expectation for pro-growth initiatives in 2025 that could bolster the economy even more. And that's all good news for the market.

See you tomorrow,