Wall Street closed higher on Wednesday, with all three major stock indexes posting their largest daily percentage gain since November 6, as investors cheered signs that inflation's still slowing and corporate earnings were still strong.

The overall annual consumer price index (CPI) rose 2.9% in December , up from 2.7% in November but in line with Reuters' average economist forecast. However, the core rate that excludes the volatile food and energy sectors, rose 3.2%, a touch less than forecasts for a 3.3% gain.

Continued easing in core inflation is heartening to investors who worried inflation would reignite, especially because recent data showed the economy remained strong. Holiday retail sales were stronger than last year, according to Mastercard, and the Labor Department said on Friday the U.S. added a booming 256,000 jobs in December with the unemployment rate dropping to 4.1% from 4.2%.

After the spate of strong data, investors had sharply pared back their expectations for more Federal Reserve rate cuts. Bank of America economists said they believe the rate-cutting cycle is over and risks now are for a Fed rate hike.

"Core Inflation isn’t accelerating and that’s the story," said Jamie Cox, managing partner at Harris Financial Group.  "The market may have had its hair on fire about inflation running away again, but the data do not support that conclusion."

Stocks got an additional boost from strong earnings from Goldman Sachs, Citigroup and other big banks to kick off the quarterly earnings season.

The broad S&P 500 index closed up 1.83% to 5,949.91; the blue-chip Dow rose 703.27 points, or 1.65%, to close at 43,221.55; and tech-heavy Nasdaq gained 2.45% to close at 19,511.23. The benchmark 10-year yield fell to 4.651% from a 14-month high of 4.809% earlier this week.

Banks lend a boost

Big banks kicked off quarterly earnings season with strong results. That, coupled with the consumer inflation report, provided the fuel for Wednesday's rally, analysts said.

"After strong quarterly figures from U.S. banks, the inflation report is not standing in the way of a favorable trading day," said Jochen Stanzl, chief market analyst at CMC Markets, in a note. "We are now seeing falling (inflation) rates precisely where the shoe pinches the most, namely in core inflation. This is exactly what the bulls on Wall Street were hoping for."

Banks that reported strong quarterly results included: