US stocks rebounded sharply on Friday after four consecutive sessions of losses, with easing oil prices, investors shrugging off renewed Federal Reserve rate-hike fears and renewed buying in beaten-down stocks driving the rally.
The Dow Jones Industrial Average surged as much as 622 points, or 1.2%, while the S&P 500 and Nasdaq Composite each gained around 1.1%. The Dow's four-session losing streak was its longest since late April.
1. Oil Retreat
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A pullback in crude prices offered some relief to investors after oil had jumped sharply this week on escalating tensions in the Middle East. West Texas Intermediate futures fell about 3% to $99.28 a barrel, while Brent crude declined 3.1% to $104.32. Despite Friday's retreat, both benchmarks remained on track for weekly gains of around 8%.
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The retreat in oil prices helped ease some concerns about the inflationary impact of higher energy costs, giving equities room to recover despite a hotter-than-expected reading on underlying consumer prices.
2. Traders Shrugging Fed Jitters
Investors also looked past signs that the Federal Reserve could remain hawkish after the latest inflation data. The US consumer price index rose 0.4% in August from the previous month and 3.4% from a year earlier, broadly matching expectations, according to the data. However, core CPI, which excludes food and energy, increased 0.3% month-on-month, 0.1 percentage point above the consensus estimate. Core inflation was 2.4% annually.
The stronger core reading pushed the two-year Treasury yield to its highest level since July 2024, reflecting growing expectations of higher interest rates.
The CME Group's FedWatch tool showed an 85.6% probability of a 25-basis-point rate hike at the Federal Reserve's next meeting. Markets were also pricing in a 60% chance of a rate hold in October and a 48.6% probability of another quarter-point increase in December.
3. Buy-On-Dips
The rebound also reflects a return of risk appetite after the recent sell-off. The major averages had declined for four straight sessions, creating an opportunity for investors to buy stocks that had come under pressure.
Technology stocks led the recovery, with investors rotating back into growth names. Oracle emerged as a standout, gaining more than 6% after reporting better-than-expected fiscal first-quarter results and strong cloud infrastructure growth.
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Oracle reported adjusted earnings of $1.92 per share and revenue of $19.35 billion, beating analysts' expectations of $1.74 per share and $19.14 billion, respectively. Its cloud infrastructure revenue more than doubled to $7.4 billion, above the $7.09 billion estimate.
The broader earnings backdrop also remained constructive. Wells Fargo Investment Institute said investors could look beyond concerns around higher interest rates, elevated oil prices and the upcoming US midterm elections, pointing instead to continued economic growth and robust corporate earnings.
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