U.S. stocks maintained their upward trend during Friday's early session, with the Dow Jones Industrial Average rising by approximately 300 points. Oil prices retreated as investors awaited further developments regarding the conflict involving Iran. The fourth-quarter GDP growth rate was revised down sharply to just 0.7%, while the core inflation rate for January was reported at 3.1%.
The Dow Jones Industrial Average advanced by 295.29 points, or 0.63%, to 46,973.14. The Nasdaq Composite increased by 155.47 points, or 0.70%, reaching 22,467.45. The S&P 500 gained 45.66 points, or 0.68%, settling at 6,718.28.
All three major averages were on track for weekly losses. The S&P 500 was down 1% for the week, poised for its first three-week losing streak in approximately a year. The Dow had declined 1.7% week-to-date, while the Nasdaq was down 0.3%.
The recent rally in oil prices reversed on Friday. West Texas Intermediate crude futures fell 3% to around $92 per barrel, while Brent crude futures dropped 2% to $98 per barrel. On Thursday, Brent crude had closed above $100 per barrel for the first time since August 2022.
U.S. stocks closed lower on Thursday after comments from Iran's new Supreme Leader, Mojtaba Khamenei, suggesting the strategic Strait of Hormuz should remain closed as a "tool to pressure the enemy," which had triggered a spike in oil prices. Traffic through the strait has been effectively halted since U.S. and Israeli strikes on Iran late last month, and investors are anxiously monitoring the situation.
On Friday, U.S. Defense Secretary Pete Hegseth downplayed concerns that the strait's closure would be a prolonged issue due to the conflict, stating at a Pentagon briefing, "We have been handling this situation; there is no need for worry."
Chris Toomey, Managing Director at Morgan Stanley Private Wealth Management, noted that rising oil prices, among other key market headwinds, have been causing investor anxiety. The surge in crude prices and heightened inflation concerns have also tempered investor expectations for Federal Reserve interest rate cuts this year.
"There is the AI infrastructure build-out, there is private credit... and then there is this energy issue. I think the energy issue is our primary concern," Toomey said.
Toomey added that if the blockage of the Strait of Hormuz persists for more than two or three months, it "would become a real problem."
Investors were also digesting the latest data from the Fed's preferred inflation gauge.
The Commerce Department reported that economic growth in the final three months of the year was significantly weaker than expected, while core inflation rose at the start of the new year.
According to the Bureau of Economic Analysis, Gross Domestic Product, which measures the value of all goods and services produced in the U.S. economy, grew at an annualized rate of just 0.7% in the fourth quarter, after seasonal adjustment and inflation.
This first revision of the GDP data was a sharp downward adjustment from the prior estimate of 1.4% and well below the Dow Jones consensus expectation of 1.5%. It marks a significant slowdown from the 4.4% growth rate in the previous quarter.
For the full year, GDP grew by 2.1%, 0.1 percentage point lower than the prior reading. In the previous year, economic growth was 2.8%.
The Bureau of Economic Analysis attributed the downward revision to adjustments in consumer spending, government spending, and exports. The decline in imports, which technically subtracts from GDP, was also less than previously estimated.
On the inflation front, January data largely met expectations, though the figures showed price increases remain well above the Fed's desired level.
The Personal Consumption Expenditures Price Index, the Fed's primary inflation gauge, rose 0.3% in January on a seasonally adjusted basis, bringing the annual rate to 2.8%. Economists surveyed by Dow Jones had expected readings of 0.3% and 2.9%, respectively.
Stripping out volatile food and energy costs, the core PCE price index increased 0.4% in January and was up 3.1% on a 12-month basis. Fed officials watch the core reading more closely as a better indicator of long-term trends. The core reading was 0.1 percentage point higher than in December.
Although these figures are now somewhat dated, they still provide a snapshot of inflationary pressures before a recent Supreme Court ruling took effect. That ruling invalidated many tariffs imposed by the former U.S. president under the International Emergency Economic Powers Act. Economists widely believe the tariffs had added about 0.5 percentage points, or slightly more, to inflation trends.
This report also predates the early March U.S. and Israeli strikes on Iran. Since the conflict began, energy prices have surged over the past two weeks, with the international benchmark Brent crude touching $100 per barrel on Thursday.
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