S&P 500 Rises 0.6% at Midday on Easing Middle East Tensions

The major indexes are rallying on Friday. Not by a lot, but any uptick counts.

Oil prices retreated from recent highs on reports of potential diplomatic progress in the Middle East. The Dow Jones Industrial Average (DJINDICES: ^DJI) is up 0.7% at 11:46 a.m. ET, gaining roughly 310 points. The S&P 500 (SNPINDEX: ^GSPC) has climbed 0.6%, while the Nasdaq Composite (NASDAQINDEX: ^IXIC) peeked 0.1% higher. All three indexes started the day lower, ranging from a 0.1% drop in the Nasdaq Composite to a 0.2% increase in the Dow.

^DJI data by YCharts

China and Pakistan step in and oil prices step down

Brent crude is trading near $95 per barrel, down roughly 4% from Thursday's close, after Reuters reported that Pakistan is exploring ways to broker new peace negotiations between the U.S. and Iran. China is apparently pushing the diplomatic effort, according to three Pakistani sources. The Iranian conflict is starting to weigh on Chinese interests, because the Middle Kingdom is a leading importer of oil from the Persian Gulf.

This comes after President Trump told Axios earlier this week that he's considering a "massive attack" on Iran that would be bigger than anything seen so far in the conflict. In other words, tensions are still high. U.S. forces have been hitting Iranian targets for 13 straight nights. But the mere possibility of diplomatic progress is enough to take some pressure off oil markets.

Image source: Getty Images.

Earnings season rumblings also moved the market this morning. American Express (NYSE: AXP) took 120 points off the Dow score with a 5.9% price drop. The credit card veteran beat earnings estimates and raised full-year revenue guidance. Still, profit margins will compress slightly in the second half as the company reinvests the extra top-line cash into cardholder perks and other growth initiatives.

The tech sector added more pressure than fuel to the S&P 500 and Nasdaq Composite indexes. Korean memory chip giant SK Hynix (NASDAQ: SKHY) is down 6.6% on reports that the company is reallocating some of its AI-oriented HBM manufacturing capacity to commodity DRAM production. Is the memory demand from AI computing systems slowing down, or are DRAM margins growing lucrative? Hynix's first earnings report as a Nasdaq-traded company should provide some insight next week.

Apple (NASDAQ: AAPL) is up 2.5% and providing the biggest boost to all three major indexes. The stock bounced back from Thursday's decline as investors rotate back into mega-cap tech.

Wrapping up a wild week

Friday's gains brought the Dow and S&P 500 back to where they were at the end of last Friday, making up for Thursday's deep cuts. The Nasdaq Composite is down 1.4% this week. Not exactly catastrophic, but not a great week either.

The market spent most of the week digesting what it actually costs to build the AI infrastructure everyone keeps promising will change everything. Next week will bring another four reports from the Magnificent 7 club, giving investors a clearer picture of how the AI boom is shaping up.

The semiconductor sector is facing its own set of problems. After this week's earnings reports, investors are jumpy about anything that suggests AI demand might be slowing.

Oil prices are still elevated despite Friday's pullback. The Middle East situation remains volatile, adding more fuel to inflationary fires than to vehicles and power plants these days.

Can this rally last? That depends on two things: oil staying below $100 and other tech giants showing lighter capex bills than Alphabet did this week. Stay tuned.

American Express is an advertising partner of Motley Fool Money. Anders Bylund has positions in Alphabet and American Express. The Motley Fool has positions in and recommends Alphabet, American Express, and Apple. The Motley Fool has a disclosure policy.