Wall Street wrapped up an eventful week with gains, as investors looked past days of rising yields, volatile oil prices and an uncertain outlook on the Middle East conflict.
The Dow Jones Industrial Average set the pace for Friday's moves, snapping a three-day losing streak. It rose 479 points, or 0.9%, to 51829. The tech-heavy Nasdaq composite and S&P 500 climbed 0.5%.
All three indexes wrapped up the week higher, despite a midweek selloff.
The strong finish for stocks came with a pause in the global bond rout. The yield on the 10-year benchmark pulled back Friday after hitting a high of 5.228%. It ended Friday at 5.18%, a fresh 19-year closing high. The 30-year yield settled at 5.5% after breaking above that level for the first time in 22 years. The two-year yield edged down to 4.862%.
Oil prices fell, partially unwinding their sharp rise from earlier in the week, on unconfirmed reports that U.S. and Iranian negotiators were working on a deal to reopen the Strait of Hormuz. International benchmark Brent crude dropped 2.1% to $104.32 a barrel.
Higher bond yields often make stocks less appealing but markets have largely held up thanks to strong earnings growth and a solid economy, said Mona Mahajan, head of investment strategy and asset allocation at Edward Jones.
"If bond yields stay elevated or continue to rise and stay there for an extended period of time, that could weigh on both stocks and growth," said Mahajan. "But thus far, I think the growth story is challenged, but not derailed in any way."
Still, persistent inflation worries could drive yields higher and keep the Federal Reserve on a rate-hiking path.
The University of Michigan's consumer sentiment reading weakened in September, but wasn't as gloomy as the preliminary estimate. Consumers' inflation expectations, including those for long-term inflation, have increased, the survey said.
Throughout the week, Federal Reserve officials have said that tamping down inflation is the central bank's priority as the labor market continues to hum and parts of the economy show growth. Several have indicated that more hikes are coming unless inflation data starts showing signs of progress.
The Fed funds futures market is currently pricing in three more quarter-point rate increases by the end of 2027. One of those could come next month. Odds for an October rate hike currently sit at more than 66%, according to the CME FedWatch tool.
Some investors caution that if the 10-year yields remain near 5.2% or climb even higher, borrowing costs could begin to drag on stock prices and economic growth.
"It's starting to edge into that restrictiveness zone where it's going to begin to exert downward pressure on risk assets and economic activity," said Joseph Purtell, a portfolio manager and rates trader at Neuberger Berman. "Financial conditions are certainly less accommodative than they were several months ago, thanks to higher rates across the curve."
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