The major averages snapped a four-session losing streak on Friday, ending the holiday-shortened week with a broad rebound as lower oil prices and renewed strength in technology stocks outweighed increased expectations for a rate hike next week. The S&P 500 (+0.9%), Nasdaq Composite (+1.0%), and DJIA (+1.0%) held sizable gains through the close, while the Russell 2000 (+0.5%) and S&P Mid Cap 400 (+0.8%) also finished higher. Despite the rebound, the major averages still ended firmly lower for the week.

A pullback in crude oil offered some relief from one of the market's biggest headwinds of the past several sessions. WTI crude settled $2.31 lower (-2.3%) at $100.08 per barrel, trimming its advance for the week to roughly 10%. The retreat came amid reports that Gulf states will meet with Iran on Monday to discuss the Strait of Hormuz, providing some optimism for a potential de-escalation after crude surged above $102 per barrel on Thursday.

Perhaps more notable was the market's ability to rally despite an August CPI report that further strengthened expectations for tighter monetary policy. Total CPI increased 0.4% month-over-month, as expected, while core CPI rose a slightly hotter-than-expected 0.3% (Briefing.com consensus: 0.2%). The CME FedWatch Tool now assigns an 86.5% probability to a 25-basis-point rate hike at Wednesday's FOMC meeting, compared with 69.4% immediately before this morning's report.

Technology and other growth stocks supplied much of Friday's leadership. The communication services (+1.4%) and information technology (+1.1%) sectors were among the better performers as Alphabet (GOOG 335.45, +5.06, +1.53%) and Apple (AAPL 332.27, +5.70, +1.75%) moved higher, with the Vanguard Mega Cap Growth ETF advancing 0.9%.

Semiconductor stocks also bounced back from Thursday's sharp decline, lifting the PHLX Semiconductor Index 1.8%. Oracle (ORCL 150.15, -2.79, -1.82%) provided an important read-through for the AI infrastructure trade despite failing to hold its own early advance. Shares initially jumped by double digits following the company's quarterly report before giving back the gain, but 121% year-over-year cloud infrastructure revenue growth, more than $30 billion in new AI-cloud contracts, and maintained FY27 capital spending plans reinforced expectations for continued data center investment. That outlook fueled sizable gains in Dell (DELL 567.14, +60.52, +11.95%), Hewlett Packard Enterprise (HPE 62.08, +6.86, +12.42%), and other related names as investors anticipated sustained demand for servers, networking equipment, and storage.

The advance was not confined to the technology complex. The industrials (+1.1%) and consumer discretionary (+1.1%) sectors also finished among the outperformers, helping give the rebound a relatively broad foundation.

Defensive groups moved in the opposite direction, with the health care (-0.1%) and utilities (-0.3%) sectors finishing as the day's laggards.

Friday's rebound ultimately recovered a meaningful portion of the losses accumulated earlier in the week, but it was not enough to prevent a firmly lower weekly finish for the major averages. The session also showed that investors were willing to look through a less favorable rate outlook when some pressure from crude oil subsided and technology leadership reemerged. Attention now shifts squarely to Wednesday's FOMC decision, where the market is assigning an 86.5% probability to a 25-basis-point rate hike.

U.S. Treasuries had a mostly lower finish to a rough week that saw yields on all notes and bonds hit fresh highs for the year amid firming expectations for a rate hike next week. The 2-year note yield settled up nine basis points to 4.64% (+26 basis points this week), and the 10-year note yield settled up three basis points to 4.98% (+20 basis points this week). 

• Russell 2000: +17.0% YTD
• Nasdaq Composite: +13.3% YTD
• S&P Mid Cap 400: +12.4% YTD
• S&P 500: +11.9% YTD
• DJIA: +9.4% YTD

Reviewing today's data:

• August CPI 0.4% (Briefing.com consensus 0.4%); Prior 0.1%, August Core CPI 0.3% (Briefing.com consensus 0.2%); Prior 0.2%
  • The key takeaway from the report is that it wasn't good enough to put September rate-hike fears to rest.
• September Univ. of Michigan Consumer Sentiment - Prelim 47.8 (Briefing.com consensus 51.5); Prior 51.7
  • The key takeaway from the report is the dour outlook embedded in the index of consumer expectations, which was plagued by a worsening outlook for personal finances and business conditions.
• The U.S. Treasury reported a $166.8 bln deficit for August (Briefing.com consensus -$485.0 bln). The Treasury Budget data is not seasonally adjusted so the August deficit cannot be compared to the July deficit of $432.3 bln. The deficit a year ago was $344.8 bln.
  • The key takeaway is that the August deficit looked much better on the surface, but the underlying fiscal picture remains largely unchanged. The August deficit was down 52% yr/yr, but calendar shifts and lower tariff-refund outlays explain much of the improvement, while the fiscal YTD deficit remains near a record $1.97 trln and interest costs are up 13% yr/yr.