The Dow rose eight tenths of a percent. The S&P 500 jumped more than a percent and a quarter, while the Nasdaq gained a percent and three quarters.
The much-anticipated CPI report due on Thursday is projected by economists polled by Reuters to show U.S. consumer prices likely grew 6.5% in December, down from a 7.1% rise in November.
Christian Ledoux, director of investments at CAPTRUST, said a softer inflation report should allow the Fed to ease up on monetary policy.
"We have a much better labor cost index in the last report and we were coming up on a CPI (Consumer Price Index) that I think most economists believe will be softer and will give the Fed a little bit more pressure to stop raising (interest rates). And you're seeing it in the bond market, the response is quite strong. The 10-year (Treasury yield) has dropped down a couple of tenths of a percent. And it's a strong indicator that the market believes the Fed should stop sooner than they're at least saying to the public."
Interest rate-sensitive megacap growth stocks posted big gains on Wednesday, with Microsoft, Alphabet and Tesla all rising at least 3%.
Shares of Amazon jumped nearly 6%, rising for the fourth session in a row.
Embattled retailer Bed Bath & Beyond extended its recent gains despite bleak quarterly results, as a meme stock rally continued to lift it and other popular names among retail traders, including GameStop and AMC Entertainment.
Shares of Goldman Sachs rose as it began laying off staff on Wednesday, according to a source familiar with the matter, in a sweeping cost-cutting drive.
The big U.S. banks kick off the season on Friday and are expected to report lower quarterly earnings, as risks of a recession rise due to monetary policy tightening.
