(Reuters) - U.S. stocks rallied to close higher on Friday, as the S&P 500 and Dow snapped a three-session losing streak and the Nasdaq rose more than 2%, as quarterly earnings helped lift Netflix, while Google parent Alphabet climbed after announcing job cuts.
Shares of Netflix Inc jumped 8.46% as the streaming company added more subscribers than expected in the fourth quarter and said co-founder Reed Hastings was stepping down as chief executive.
Netflix's quarterly report comes as the technology and other growth-related sectors face hurdles due to the rising interest rate path of the U.S. Federal Reserve and recession worries that have led companies such as Microsoft Corp and Amazon.com Inc to lay off thousands of employees.
Alphabet Inc was the most recent company to announce job cuts as it said it was cutting 12,000 jobs, sending shares 5.34% higher.
The gains sent the communication services index up 3.96% as the top performer among the 11 major S&P 500 sectors, notching its biggest daily percentage gain since Nov. 30.
High-growth sectors such as communication services were among the worst performing in 2022 and were notably weaker in the last few months of the year as investors gravitated towards stocks with high dividend yields.
"Today’s action is probably because we had three down days so it got into a little bit of an oversold position and they are just doing a little bit of bargain hunting today," said Ken Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.
"If people are viewing an opportunity, if they are getting more comfortable with the Fed’s narrative... investors are starting to buy into that narrative and saying 'OK that is the way it is, let’s look at the stocks that got really beaten up' because the market is a discounting mechanism."
The Dow Jones Industrial Average rose 330.93 points, or 1%, to 33,375.49, the S&P 500 gained 73.76 points, or 1.89%, to 3,972.61 and the Nasdaq Composite added 288.17 points, or 2.66%, to 11,140.43.
For the week, the Dow lost 2.7%, the S&P 500 shed 0.66% and the Nasdaq gained 0.55%.
Comments from Federal Reserve officials have largely said they expect interest rates to climb to at least 5% this year as the central bank continues to try and tamp down high inflation. On Friday, Fed Governor Christopher Waller said the central bank may be "pretty close" to a point where rates are "sufficiently restrictive" to cool inflation, which gave an additional boost to equities.
The Fed is largely expected to raise rates by 25 basis points (bps) at its Feb. 1 policy announcement.
Still, concerns about corporate earnings persist as the U.S. economy shows signs of a slowdown and a possible recession.
Analysts now expect year-over-year earnings from S&P 500 companies to decline 2.9% for the fourth quarter, according to Refinitiv data, compared with a 1.6% decline in the beginning of the year.
Gains on the Dow were curbed, however, by a 2.54% fall in shares of Goldman Sachs Group Inc after the Wall Street Journal reported the Fed was probing the company's consumer business.
Volume on U.S. exchanges was 11.90 billion shares, compared with the 10.87 billion average for the full session over the last 20 trading days.
Advancing issues outnumbered declining ones on the NYSE by a 3.55-to-1 ratio; on Nasdaq, a 2.63-to-1 ratio favored advancers.
The S&P 500 posted one new 52-week high and four new lows; the Nasdaq Composite recorded 77 new highs and 20 new lows.