By Riva Gold and Corrie Driebusch
Falling energy prices dragged U.S. stocks lower Friday, pausing a weeklong winning streak that was sparked by fading concerns about the economy and interest-rate policy.
Oil-and-gas companies weighed on the broader market Friday as the price of U.S.-traded crude oil fell for the first time in almost two weeks. The S&P 500 dropped 0.3% in recent trading as energy companies in the index lost 0.9%, making it the worst-performer sector.
The Dow Jones Industrial Average fell 96 points, or 0.4%, as Chevron and Exxon Mobil both declined 0.8%. The Nasdaq Composite fell 0.4%, as well.
Activision Blizzard was one of the worst performers in the tech-heavy index, falling 10% after it said late Thursday that it was cutting ties with a videogame studio.
Even with Friday's declines, major U.S. indexes were set to end the week higher, with the S&P 500 up more than 2% for the week, and all three major indexes on track for three consecutive weeks of gains.
Stocks around the world have drawn support recently from reassurance from the Federal Reserve that it will adjust its pace of tightening monetary policy if needed, as well as hopes for progress in U.S.-China trade relations, rising oil prices and signs the U.S. economy remains healthy.
On Thursday, Federal Reserve Chairman Jerome Powell reiterated the central bank's flexible outlook on raising rates at an appearance in Washington, D.C., while Fed Vice Chairman Richard Clarida separately said low inflation should allow the central bank to be patient with future interest-rate increases.
"Two big risks were taken off the table in the last week. The jobs report showed the U.S. economy is still strong, and we got confirmation that the Fed is listening to the market and isn't on autopilot," said Jeff Schulze, investment strategist at ClearBridge Investments.
Investors now see a roughly 19% of one or more additional interest-rate rises by late June, compared with a 45% chance a month ago, according to fed-fund futures tracked by CME Group.
That has pushed the dollar lower, helping support a rebound in emerging markets and commodities, and assuaged investors' fears about the global economy.
The Stoxx Europe 600 ticked up 0.1% Friday, on course to end the week 1.7% higher, while Japan's Nikkei and Hong Kong's Hang Seng each gained Friday and climbed around 4.1% this week, their biggest weekly gain since November.
Jeroen Blokland, a portfolio manager at Dutch asset manager Robeco, said he recently increased exposure to stocks in his portfolios on the expectation that growth will continue.
He expects volatility to return, however. "Some kind of turbulence, or phases of elevated volatility, will stay with us because every time the economy hits a soft spot, there will be this chatter about a potential recession coming," he said. "I don't think we'll see the stability we've seen in 2017 and the first part of 2018, but I do think it will become less volatile than December."
Meanwhile, investors have become more hopeful about the trade outlook in recent weeks. Following midlevel trade talks held in Beijing this week, China and the U.S. are moving ahead with plans for higher-level talks, with President Xi Jinping's economic-policy chief scheduled to visit Washington in late January.
Uncertainty around the trade outlook led analysts in December to rapidly downgrade their forecasts for corporate earnings.
Companies in the S&P 500 are forecast to grow their earnings by 12% in the fourth quarter of 2018, down from a forecast of 18% in July, according to FactSet.
"Earnings estimates were slashed in anticipation of trade war," said Mike Thompson, head of S&P Investment Advisory Services.
Now, "It's easier to be optimistic at these [valuation] levels, and there's more clarity [on the economic and policy outlook]" he added, noting he expects U.S. earnings to exceed expectations by a large margin as fourth-quarter results begin to pour in next week.
The S&P 500 currently trades at 15 times forward earnings, down from 18.6 a year ago.
Write to Riva Gold at firstname.lastname@example.org and Corrie Driebusch at email@example.com