Wall Street closed higher across the board on Friday, ending a four-day losing streak, as falling oil prices eased concerns about renewed inflationary pressure just days before a critical Federal Reserve meeting. The rally was not enough to erase a losing week overall.
The Dow Jones Industrial Average gained 509 points, or 0.98%, to close at 52,573. The S&P 500 added 0.86% to reach 7,656, while the Nasdaq Composite jumped 0.96% to 26,333.
In bond markets, yields showed only modest movement. Longer-dated bonds performed better, with the 30-year yield edging down to 5.354%, while the 10-year yield ticked up slightly to 4.971%.
Inflation Data Still Above Target
New consumer price data showed inflation is still making limited progress toward the Fed's target, with pressure continuing from the war with Iran, tariffs and heavy investment in artificial intelligence infrastructure.
According to the U.S. Bureau of Labor Statistics, headline and core inflation rose 0.4% and 0.3% respectively in August on a monthly basis. Analysts had forecast a 0.4% rise in headline inflation and 0.2% in core inflation.
On an annual basis, headline inflation stood at 3.4% in August, unchanged from July, while core inflation eased slightly to 2.4% from 2.5%. Both readings came in close to market expectations.
Yet the market's reaction suggested investors may view a moderate inflation increase paired with a stricter Fed stance as a positive development, given fears of overly loose or inflationary economic policy. Florian Ielpo of Lombard Odier Investment Managers said this was clearly not the inflation report markets had feared, but nor was it one that definitively closed the book on U.S. inflation.
Fed Rate Decision in Focus
Chris Zaccarelli of Northlight Asset Management said there was no guarantee the Fed would raise rates next week, but it was hard to see how the central bank could justify leaving rates unchanged.
The data significantly boosted the odds of a 25 basis point rate increase at next week's meeting. According to the CME Group's FedWatch tool, the probability of such a move rose to nearly 87%, up from around 69% before the data was released. Expectations for tighter policy had already been building amid renewed conflict in the Middle East.
Brett Kenwell of eToro said the most important issue for markets was not just the Fed's next decision but the message that accompanies it. He said that if the Fed presents the move as a preemptive safeguard against a fresh flare-up in inflation, rather than the start of a prolonged tightening cycle, markets could interpret it as a mild increase.
Oil Prices Ease on Gulf Diplomacy
News that Tehran and Muscat are organizing a meeting on Monday with other Gulf states in Salalah, Oman, to discuss a temporary agreement on reopening transit through the Strait of Hormuz had an immediate effect on energy markets, helping to relieve pressure on stocks.
Brent crude futures fell below $105 a barrel, and U.S. benchmark West Texas Intermediate settled just above $100 a barrel. Both benchmarks remain at very high levels, with gains of more than 9% for the week.
The Fed now faces a key question of whether to focus on elevated energy prices or the economy's resilience in deciding whether it can continue holding rates steady.
Tech Winners and Losers
Hewlett Packard Enterprise was among the day's biggest gainers, rising sharply as investors reacted positively to prospects created by rising demand for artificial intelligence infrastructure and data centers. Dell Technologies also moved higher, as the market sees AI investment fueling a new cycle of demand for high-performance equipment.
HP Inc. also posted a strong gain, benefiting from an overall positive picture for the technology hardware sector as investors sought out companies positioned to profit from the expansion of AI infrastructure.
NetApp was also among the winners, rising significantly after a strong market reaction to its results and its prospects in data storage, an area considered critical to the growth of AI applications.
On the losing side, Oracle posted an unexpected reversal. After a sharp rise early in the session on the back of strong quarterly results, a wave of selling destabilized the stock. Copart also recorded losses after announcing a deal to acquire ACV Auctions, a move that raised market questions about the cost and integration of the acquisition despite its strategic appeal.
