Stocks enjoyed a notable rebound on Friday following a significant sell-off as investors grappled with concerns over slowing economic growth and persistent inflation, all while adjusting their expectations for potential interest rate cuts amid an escalating conflict in Iran.
The Dow Jones Industrial Average emerged as the leader among the major indices, climbing approximately 0.7%. Following closely, the S&P 500 and Nasdaq Composite recorded gains of 0.6% and 0.5%, respectively. This upswing came in the context of renewed inflation fears and rising oil prices, which have altered expectations surrounding Federal Reserve monetary policy. While traders have tempered their predictions for interest rate cuts this year, they are now closely analyzing new data to better understand the economic landscape.
Data released by the Bureau of Economic Analysis on Friday highlighted that the Personal Consumption Expenditures (PCE) index—a key indicator of inflation—registered a 0.3% increase in January compared to the previous month. Additionally, core PCE, which excludes the more volatile food and energy sectors, also saw a rise of 0.4% month-over-month, consistent with economists’ forecasts. These figures have implications for the Federal Reserve’s approach, as the PCE index is one of its preferred measures of inflation.
In a separate report, economic growth was shown to have slowed more than previously estimated in the fourth quarter of last year. The real gross domestic product (GDP) growth rate was revised down to 0.7%, a significant drop from the earlier estimate of 1.4%. This downward adjustment reflects a notable deceleration from the robust 4.4% growth recorded in the third quarter of 2025.
Simultaneously, the geopolitical situation in the Middle East, particularly the ongoing conflict involving Iran, continues to concern investors. The situation has escalated over the past week, with Israel launching renewed attacks on Tehran and reports emerging of missile strikes on Dubai and Turkey allegedly orchestrated by Iranian forces. Adding to the unrest, the U.S. military confirmed the deaths of four crew members following the crash of a refueling plane.
Oil prices have reacted sharply to the conflict, contributing to market instability. The three major U.S. stock indices had reached their lowest closing levels of 2026 on Thursday, due to the heightening geopolitical tensions. In response, the U.S. issued a second waiver for the purchase of sanctioned Russian crude oil in an attempt to stabilize the market. Analysts noted that while this action could ease some of the pressure, it might not fully resolve what is perceived as one of the most significant oil supply disruptions in history.
On Friday, crude prices pulled back slightly, with West Texas Intermediate futures dropping 2% to fall below $94 per barrel. Meanwhile, Brent crude futures retreated to just under $100 after having climbed above that threshold earlier in the day. This retreat in oil prices provides a glimmer of hope for investors as they navigate a complex economic and geopolitical landscape.
