US stock index futures recovered on Friday, as oil prices declined and investors looked to the upcoming consumer inflation report to potentially end a challenging week on a positive note. This follows a period of market fragility driven by fluctuating interest rate expectations, the intensifying Middle East conflict, and elevated Treasury yields. The market is now awaiting the Consumer Price Index (CPI) report, which could further influence rate expectations, especially after Thursday's slightly higher-than-expected Producer Price Index (PPI) reading.
Oracle's stock jumped nearly 7% premarket, reassuring shareholders that its AI investments are generating returns after topping quarterly estimates. Nvidia also saw a modest rise of 0.9%. This positive news for Oracle comes after a period of underperformance, and the company reported booking over $30 billion in additional AI cloud contracts in the first fiscal quarter, increasing its revenue backlog to $664 billion, exceeding analyst estimates of $639.89 billion. However, Adobe slipped over 3% premarket after its fourth-quarter revenue forecast midpoint fell short of expectations.
Oil prices retreated, with Brent crude futures sliding over 3% to just above $104 a barrel, and West Texas Intermediate (WTI) crude futures falling 2.6% but remaining near the $100-a-barrel mark. This decline in oil prices provided some relief to the market. The previous day, WTI had climbed above $100 a barrel, and both WTI and Brent recorded their strongest settlement levels since May 19, amidst the seventh month of conflict between the United States and Iran. The surge in energy prices had raised concerns about inflation, with the US national average price of diesel surpassing $6 a gallon for the first time ever on Thursday.
Despite the day's gains, the S&P 500 was on track for its biggest weekly loss since June, and the Dow was headed for its steepest decline since March up to Thursday's close. Jeff Schulze, head investment strategist at Franklin Templeton Institute, noted that historically, strong starts to the year tend to persist, with the S&P 500 rising further from September through December in 25 out of 28 instances when it gained more than 10% through August since 1950. However, the yield on the 10-year US Treasury note dipped 0.16 basis points but remained at 4.9424%, its highest since 2023, which typically lowers the appeal of stocks.
Economists anticipate the Consumer Price Index to show a 3.4% annual increase for August, matching the previous month's pace. While inflation has eased since May, it still remains above the Federal Reserve's 2% target. Market participants are assigning a 72% probability to a Fed rate increase this month, a significant jump from roughly even odds just a week prior. Said Haidar, founder of Haidar Capital Management, expressed concern that the Federal Reserve needs to respond to these inflationary pressures soon to avoid a repeat of the high inflation of the 1970s.
