U.S. stocks surged Wednesday, with all three major indexes registering their biggest daily percentage gains in more than two months, as lower-than-expected December core inflation data and solid earnings from major U.S. banks fueled a rally.

The Labor Department said the consumer price index (CPI) increased the most in nine months as energy costs rose, although a measure of underlying inflation pressures subsided.

Data on Tuesday showed the producer price index (PPI) rose less than expected.

"We've gotten so puckered over the fact that rates might be going up and this is going to be a problem and the UK won't be able to borrow money and oh, our deficit, and so everyone was kind of wound up," said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.

"The CPI number and the PPI number — they're not super cool, but they're certainly not hot — and certainly it leads one to believe that the embers of inflation are dying."

According to preliminary data, the S&P 500 gained 106.45 points, or 1.82%, to end at 5,949.36 points, while the Nasdaq Composite gained 466.84 points, or 2.45%, to 19,511.23. The Dow Jones Industrial Average rose 696.60 points, or 1.64%, to 43,214.88.

All three major indexes scored their biggest daily percentage gains since Nov. 6, as did the domestically focused Russell 2000 index of small-cap stocks.

Stocks have struggled recently following a post-U.S. election rally, with the S&P 500 falling in four of the previous five weeks. A resilient economy, nagging inflation and comments from Federal Reserve policymakers have fanned worries about the central bank being less aggressive in cutting interest rates than previously anticipated.

Concerns linger about potential tariffs from President-elect Donald Trump's incoming administration that would further stoke inflation.

But expectations for more Fed rate cuts this year increased following the CPI data, along with odds for a cut of at least 25 basis points at the June Fed meeting.

Fed officials said on Wednesday the recent inflation data was helpful but noted uncertainty in the coming months as they await policies from the incoming Trump administration.

The Fed's Beige Book showed economic activity increased slightly to moderately in late November and December, with employment ticking up and prices rising moderately amid concerns about the potential impact of Trump policies.

The benchmark Treasury note yield tumbled from a 14-month high of 4.809% hit earlier this week and was last down nearly 14 bps on the day.

Also providing support were earnings from large banks, with JPMorgan shares rising on a

record annual profit from rebounding markets in the fourth quarter. Wells Fargo jumped after its fourth-quarter profit beat Street expectations as a surge in dealmaking activity boosted its investment banking business.

Goldman Sachs was the biggest boost to the Dow Industrials following its best quarterly profit since the third quarter of 2021. Citigroup shot up after it swung to a profit in the fourth quarter.

Relief also came from a long-awaited phased deal to end the war in Gaza, putting an end to 15 months of conflict.