Stock market today: Dow, S&P 500, Nasdaq soar as inflation cools, bank earnings shine

US stocks rallied on Wednesday as high hopes for bank earnings paid off and a crucial consumer inflation update showed prices increased less than expected in December.

The benchmark S&P 500 ( ^GSPC ) popped more than 1.6% while the Dow Jones Industrial Average ( ^DJI ) rose more than 1.5%. Meanwhile, the tech-heavy Nasdaq Composite ( ^IXIC ) soared 2.2%.

Stocks took a leg higher after the Consumer Price Index (CPI) showed progress toward the Fed's 2% inflation target in December.

Prices climbed 0.2% month-on-month on a "core" basis, which strips out the more volatile costs of food and gas, an easing from November's 0.3% gain. Over last year, core CPI rose 3.2%.

Until the latest print, annual core CPI had been stuck at a 3.3% gain for the four months. December was the first time since July that the metric reflected a deceleration in price growth.

The 10-year Treasury yield ( ^TNX ) dropped over 14 basis points to trade around 4.64% after the cooler-than-expected reading. It had been up at its highest level in more than a year, serving as a headwind for stocks . The interest rate sensitive small-cap Russell 2000 Index ( ^RUT ) soared in reaction, rising 2.3%.

Traders still see just a 3% chance that the Fed lowers rates in January, per the CME FedWatch Tool . They remain split on whether a cut will come in the back half of this year, with odds of easing in June now seen as more likely than not.

Read more: What a Fed rate cut means for bank accounts, CDs, loans, and credit cards

Spirits also got a boost from Wall Street bank earnings reports, which brought surging profits thanks to a dealmaking revival and investment banking strength. JPMorgan Chase ( JPM ) delivered on optimistic analyst expectations with a second straight year of record profit , while Goldman Sachs ( GS ) profit beat estimates . BlackRock ( BLK ), Wells Fargo ( WFC ) and BNY ( BK ) also booked bumper quarters.