Wall Street closed higher on Friday as a pullback in oil prices eased some of the concerns about inflationary pressure ahead of next week's meeting of the US Federal Reserve. But for the week as a whole, the main US indexes still finished lower, dragged down by a sell-off in the bond market, growing expectations of a rate increase and a sharp rise in oil prices in recent days.
The Dow Jones Industrial Average gained 0.98% to close at 52,573.29. The broader S&P 500 rose 0.86% to 7,656.98, while the technology-heavy Nasdaq climbed 0.96% to 26,333.04.
Weekly losses despite Friday rebound
Over the week, the S&P 500 fell 0.8%, the Nasdaq lost 0.7% and the Dow dropped 1.6%. Markets are now treating a Federal Reserve rate increase in September as almost certain following the latest consumer price data, but buyers returned on Friday, breaking a four-day losing streak for the S&P 500.
The Federal Reserve is the US central bank, and its decisions on interest rates influence borrowing costs and investment returns across global markets. The Dow Jones, S&P 500 and Nasdaq are the three benchmark indexes most closely watched to gauge the health of American stocks.
Oil prices pull back from a four-month high
Oil prices retreated from a four-month high on Friday, helping to improve the broader investment mood, even though prices remained on track for weekly gains. US diesel prices, meanwhile, reached a new record high.
Brent crude futures fell $2.69, or 2.5%, to $104.92 a barrel on Friday evening. US West Texas Intermediate crude dropped $2.04, or 1.98%, to $100.45 a barrel. Despite the Friday decline, both contracts were still up around 8% for the week, and the pullback appeared to be enough to reassure investors even after the release of the inflation figures.
Inflation data raises rate hike bets
US inflation continued to rise in August, further increasing the likelihood that the Federal Reserve will tighten policy next week despite strong objections from the White House.
The consumer price index rose 0.4% in August from the previous month, after a marginal 0.1% increase in July, the US statistics agency reported. Over the twelve months to August, inflation rose 3.4%, matching the annual rate recorded in July.
The figures confirmed the estimates of analysts polled by Reuters. Excluding the more volatile food and energy categories, the core index rose 0.3% in August after a 0.2% increase in July. On an annual basis, core inflation rose 2.4% in August, down from 2.5% in July.
Fed meeting and market expectations
Producer price data released on Thursday showed sharp increases in several key components that feed into inflation calculations. Combined with the strong August employment report published the previous week, this significantly reinforced expectations of a Federal Reserve rate increase next week.
Following the consumer price data, markets were pricing in roughly a 90% probability of a 25 basis point rate increase at the Fed's policy meeting on September 15-16, according to the CME Group's FedWatch tool, which tracks trader bets on future Fed decisions based on futures pricing.
Oracle beats cloud revenue forecasts
In corporate news, Oracle reported quarterly cloud computing revenue that beat Wall Street's expectations, although the company's gross profit margins narrowed. Oracle is one of the world's largest enterprise software and cloud services companies.
