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US stocks rallied sharply on Wednesday as traders took in encouraging inflation data and strong earnings from Wall Street banks.

The sell-off in bonds also got some relief as the 10-year Treasury yield tumbled as many as 16 basis points. The move offers some relief to equity investors who have been nervously watching the 10-year note as it approaches the psychologically significant 5% threshold , which has historically been a sell signal.

The bright spot in Wednesday's data was core inflation — which strips out food and energy prices — coming in lower than expected. It soothed investor worries about persistently high consumer prices, at least temporarily. That concern has informed a sharp run-up in bond yields, as investors have pared back expectations of rate cuts in 2025, with some even surmising a hike could be the next move .

On the bank-earnings front, Goldman Sachs, JPMorgan, and BlackRock results all came in above expectations , fueled by strong trading-desk performance.

Here's where US indexes stood at the 4 p.m. closing bell on Wednesday:

Investors are largely expecting the Federal Reserve to pause its rate-cutting cycle this month. But the probability that the Fed will cut interest rates by 25 basis points twice this year rose Wednesday, with markets seeing a 30% chance rates will end the year 50 basis points lower from current levels, according to the CME FedWatch tool , up from a 24% probability on Tuesday.

"Wednesday's softer-than-expected CPI print offers some relief, especially after last Friday's hot employment numbers, that the Fed may be able to still cut interest rates in 2025," Skyler Weinand, the chief investment officer of Regan Capital, said in a statement. "Even if the Fed cuts rates in 2025, it's likely to be six to eight months away, as we are still too far from the Fed's inflation target for the Fed to continue their rate cut march anytime soon."

"The Fed can be patient and the economy is healthy," Scott Helfstein, the head of investment strategy at Global X, said. "This is not a time to run for the hills."

Here's what else is going on: