US markets extend gains after Gaza ceasefire announcement

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US markets extended their gains on Wednesday after the announcement of a Gaza ceasefire agreement between Israel and Hamas, which had been regarded as a significant risk to the financial system.

“This was on the front line of our concerns, so to be able to move beyond that for markets certainly adds stability and influences investor confidence,” Art Hogan, chief market strategist at B Riley Wealth in Boston, told The National.

The Dow Jones Industrial Average closed 703 points – or 1.7 per cent – higher, posting its best day since November. The S&P 500 climbed 1.8 per cent while the Nasdaq Composite rose 2.5 per cent.

The blue-chip Dow Jones rose by about 250 points after mediators in Qatar announced the ceasefire. The pause in fighting, to begin on January 19, brings new optimism that the 15-month conflict will end.

The first phase of the deal will last for 42 days and include a ceasefire, an exchange of hostages and detainees between Israel and Hamas, and the exchange of bodies, returning displaced Gazan civilians to their homes, and Israel's withdrawal from densely populated areas.

“It is something that accelerated what was already a positive day,” Mr Hogan said. “Markets certainly breathed a sigh of relief on top of a very good day.”

US markets were already experiencing a winning day on Wednesday after a tame inflation report and bumper earnings from the nation's big banks helped to reverse losses from last week.

The Labour Department reported that core inflation, which strips the volatile food and energy index, rose by 0.2 per cent on a monthly basis, lower than expectations of 0.3 per cent. The metric rose 3.2 per cent on an annual basis, the first time it fell below 3.3 per cent in four months. Headline inflation came in at 2.9 per cent year-on-year, in line with expectations.

Big banks also posted positive fourth-quarter earnings. Shares in JPMorgan Chase and Goldman Sachs rose 1.95 per cent and 6 per cent, respectively. Shares in Citigroup climbed 6 per cent after beating fourth-quarter estimates, while Wells Fargo also rose 6 per cent.

Peter Andersen, founder of Andersen Capital Management in Boston, said he believed the market reaction to the ceasefire deal was overshadowed by the economic data and earnings, noting there is still apprehension over the uncertainty of the incoming Donald Trump administration in the US.

“I think a lot of investors tend to be on the sidelines until a month from now. Most people are in a holding pattern and the Israel-Hamas deal didn't move them much,” he said.

"It should calm nerves and it should stabilise the energy markets, but maybe people are waiting for the next truce [in the Russia-Ukraine war]."