US stocks rebounded sharply on Friday after four consecutive sessions of losses, with the S&P 500 gaining 0.85% to 7,656.54 points and putting the index on course to end a four-day losing run. The Nasdaq Composite advanced 0.94% to 26,327.58 points, while the Dow Jones Industrial Average rose 0.96% to 52,566.22 points. The recovery came as oil prices retreated significantly, with Brent crude futures slipping almost 3% but remaining above $104 a barrel after having approached $110 overnight. Despite Friday's retreat, both benchmarks remained on track for weekly gains of around 9%, offering some relief to investors after oil had jumped sharply this week on escalating tensions in the Middle East. The Dow's four-session losing streak was its longest since late April, making Friday's rebound particularly significant for market sentiment.
Consumer prices accelerated in August with the CPI rising 0.4%, up from a 0.1% increase in July, as the cost of gasoline rebounded after two straight monthly declines, adding pressure on the Fed to tighten monetary policy to fight inflation. Interest rate futures now reflect a nearly 90% probability that the central bank will raise rates at its policy meeting on Wednesday, up from a 72% likelihood on Thursday according to the CME FedWatch tool. As per Thomas Martin, senior portfolio manager at GLOBALT Investments, "That's pretty much as close to a slam dunk as you're going to get. The Fed will do the right thing and raise rates, and that is good at the margin for keeping inflation in check." The CBOE Volatility Index fell 2.2 points to 15.63, indicating reduced market uncertainty as investors prepare for the Fed's policy decision. The CPI data showed energy costs surged 2.1% month-over-month, with gasoline prices jumping 3.9%, while over the last 12 months, the all items index increased 3.4% before seasonal adjustment.
The market recovery was broad-based with ten of the 11 S&P 500 sector indexes rising, led by communication services up 1.69% and information technology gaining 1.35%. The PHLX chip index jumped 2.39%, helped by a 2.6% increase in Advanced Micro Devices. Technology stocks showed strong performance with Dell soaring to a record high, Hewlett Packard Enterprise jumping 10%, and HP gaining 6.5% after Oracle's quarterly results topped estimates. The S&P 500's recent decline, coupled with a strong earnings outlook, has the benchmark trading at 19 times expected earnings, its cheapest since April 2025. Advancing issues outnumbered falling ones within the S&P 500 by a 2.6-to-one ratio, with the S&P 500 posting seven new highs and seven new lows.
Bitcoin slipped below the psychologically important $77,000 level on Thursday as investors sharply increased their expectations of another Federal Reserve interest-rate hike. The world's largest cryptocurrency fell to an intraday low of roughly $76,748 on Sept 10, adding to the broader market pressure from monetary policy concerns. The CME FedWatch tool showed the probability of a Federal Reserve rate hike climbing to roughly 70% following the latest PPI report, compared with around 64% beforehand, with other market gauges putting the odds even higher at approximately 74%. The Producer Price Index (PPI) rose 5.4% year over year in August, slightly above the 5.3% consensus estimate, with the monthly increase coming in at 0.4%. The Fed story is closely connected to another major source of pressure on Bitcoin: soaring energy prices, as Brent crude surged above $100 per barrel on Thursday amid escalating Middle East tensions. The bond market is adding substantially to the pressure, with the 10-year Treasury yield hitting 4.95% and the 30-year Treasury yield advancing to 5.35%, reaching levels last seen in 2007.
The market recovery gained additional support from fresh inflation data that came broadly in line with expectations, helping to ease some of the pressure from earlier concerns. A report released on Friday showed that prices paid by US consumers for gasoline, food and other living costs were 3.4% higher last month than a year earlier. While inflation remains too high, the reading was close to economists' expectations and what Wall Street had been prepared for. The figures also reinforced expectations that the Federal Reserve will raise its main interest rate at its meeting next week. Higher interest rates are used by the Fed to tackle inflation by making borrowing more expensive through the bond market, providing a clear policy path for investors to navigate the current economic environment. The Treasury Department completed a buyback of $5.19 billion of $6 billion in long-dated Treasuries on Thursday in an effort to manage yield curves as energy prices soared. The S&P 500 remains up 12% in 2026 despite being down about 2% from its record-high close on August 13.
