Stocks rose while bond yields fell as an unexpected slowdown in inflation boosted bets that the Federal Reserve's aggressive hiking cycle has ended and that the next move will be a cut in mid-2024.

Approximately 95% of the S&P 500 companies rose, with the index rising nearly 2%. Tesla led megacap gains, while Nvidia rallied for the tenth consecutive session. Regional banks increased by nearly 6%. The Russell 2000 small-cap index gained more than 5%. Goldman Sachs' basket of the most-shorted stocks outperformed the market, indicating that some traders are preparing to cover bearish bets. Five-year yields have fallen by 24 basis points to 4.42%. The dollar dropped 1.2%.

While Wall Street's rally may risk further easing of financial conditions, complicating the Fed's job, bets on a "pivot" next year have risen. Fed swaps show that the chances of another hike have nearly vanished, with the market pricing in a 50 basis-point rate cut by July.