Wall Street experienced more significant swings on Friday, but this time the U.S. stock market showed a positive trend, with the S&P 500 rising 0.8% in afternoon trading after fluctuating through the morning. The Dow Jones Industrial Average climbed 496 points, or 1.1%, and the Nasdaq composite was 0.6% higher. This upturn appeared to be bolstered by remarks from John Williams, president of the Federal Reserve Bank of New York, who indicated “room for a further adjustment” for interest rates, suggesting a potential rate cut in December. Markets reacted immediately to his speech, increasing the probability of a December cut to nearly 70% from 39% a day prior, according to CME Group data. Expectations for invigorating rate cuts have been crucial for Wall Street, with stock prices reaching record highs last month.

However, uncertainty persists as other Fed officials have voiced opposition to a December rate cut, citing persistently high inflation. This sharp disagreement, combined with ongoing concerns about whether prices for stocks linked to the artificial intelligence (AI) boom and cryptocurrencies have climbed too high, has fueled dramatic market volatility. These swings reached a peak on Thursday, with U.S. stocks experiencing their largest reversal since April, initially surging after Nvidia seemingly eased AI bubble worries, only to drop sharply later. This prior reversal occurred when President Donald Trump shocked markets with his “Liberation Day” tariffs, which also impacted Bitcoin, causing it to plunge briefly below $81,000 before recovering to $83,000, significantly down from its nearly $125,000 peak last month and back to April levels.

Despite a strong profit report from Nvidia, a key player in AI chip manufacturing, lingering worries about the long-term profitability of AI investments remain. Investors question whether the substantial spending by companies like Amazon and Meta Platforms on AI chips and data centers will translate into significant profits and productivity gains. These concerns kept AI-linked stocks skittish on Friday, influencing the broader market. Nvidia, for instance, fluctuated from an initial gain to a 1% drop, while Amazon moved from an early loss to a 0.5% rise. Despite these movements in Big Tech, which often overshadow other stocks due to their immense market capitalization, approximately 90% of stocks in the S&P 500 recorded gains.

Brian Jacobsen, chief economist at Annex Wealth Management, noted that when the largest companies drive most of the losses, the market can appear weaker than it truly is. Several sectors contributed positively to Friday's market performance. Retailers like Gap, which jumped 8% after reporting stronger-than-expected quarterly profits and strong sales trends across its Old Navy, Gap, and Banana Republic brands, and Ross Stores, which rose 7.2% after also exceeding profit expectations and raising its holiday season sales forecast, led the way. Homebuilders such as D.R. Horton (up 6.8%), PulteGroup (up 5.3%), and Lennar (up 6%) also performed strongly, driven by hopes that lower interest rates would make mortgages more affordable and invigorate the housing market.

In the bond market, Treasury yields eased following Williams’ speech, with the yield on the 10-year Treasury falling to 4.07% from 4.10% late Thursday. Further support for potential rate cuts came from a University of Michigan report indicating that U.S. consumers' short-term and long-term inflation expectations were less severe than a month prior. This data could provide the Federal Reserve with additional flexibility to cut rates, as it reduces the risk of a vicious cycle fueled by rising inflation expectations. Internationally, stock markets in Europe were mixed, while markets in Asia, including Japan’s Nikkei 225 (down 2.4%) and South Korea’s Kospi (down 3.8%), tumbled following Wall Street’s sharp reversal on Thursday.