S&P 500 posts longest weekly loss streak since 2011

U.S. stocks rallied on Friday, softening a fourth week of losses, as investors bet on further stimulus from central banks and corporations including General Electric and Morgan Stanley reported profits that topped expectations.

"The earnings season is coming along beautifully. No one is talking down the next quarter or next year based on currency, particularly the big multinationals doing business overseas. Their visibility is still okay," said Phil Orlando, chief market strategist at Federated Investors, referring to concerns that the strength of the U.S. dollar might increase the price and reduce the appeal of U.S. goods and services sold outside the U.S.

Morgan Stanley gained after the investment bank tallied third-quarter earnings that beat estimates. General Electric climbed after its quarterly profit exceeded expectations.

The CBOE Volatility Index, a measure of investor uncertainty, dropped almost 13 percent to 21.99, a level that has it up nearly 74 percent from a month ago.

"That spike in volatility was an engraved invitation to put more money into stocks," Orlando said.

The Commerce Department on Friday reported new-home construction climbed 6.3 percent in August, signaling improvement in the U.S. residential real-estate market.

The preliminary read for consumer sentiment in October came in at 86.4 versus a 84.0 estimate.

In prepared remarks delivered Friday, Fed Chair Janet Yellen voiced concern about income inequality in the United States, saying by some accounts, it is near its highest level in the past 100 years.

On Thursday, St. Louis Federal Reserve Bank President James Bullard said the central bank should think about postponing the end of its bond purchases.

"Bullard's comments stabilized the market with this thought from the Fed: 'we've got your back.' I don't know that the Fed will skip the taper in two weeks, but they might push out the commencement of Fed fund rate increases. When Yellen keeps telling us she's data dependent, I think she means it," said Orlando.

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Scaling back after a 310-point jump, the Dow Jones Industrial Average rallied 263.17 points, or 1.6 percent, to 16,380.41, with UnitedHealth Group leading blue-chip gains that extended to all 30 components. Halting a six-session decline, the Dow lost 1 percent for the week.

Posting its longest weekly loss streak since August 2011, the S&P 500 added 24 points, or 1.3 percent, to 1,886.76, with industrials the best performing of its 10 major sectors, all of which advanced.

The Nasdaq climbed 41.05 points, or 1 percent, to 4,258.44, down 0.4 percent from last Friday's close.

The Russell 2000 edged lower, but the small-cap index scored its first weekly gain in seven.

For every share falling, nearly two gained on the New York Stock Exchange, where more than a billion shares traded. Composite volume approached 4.5 billion.

A trader works on the floor of the New York Stock Exchange.
Getty Images
A trader works on the floor of the New York Stock Exchange.

The dollar gained against the currencies of major U.S. trading partners and the yield on the 10-year Treasury note used to figure mortgage rates rose 3 basis points to 2.197 percent.

On the New York Mercantile Exchange, oil futures for November delivery added 5 cents, or 0.1 percent, to $82.75 a barrel, down 3.6 percent on the week; gold futures for December delivery dropped $2.20, or 0.2 percent, to $1,239 an ounce, posting a weekly gain of 1.4 percent.

The 25 percent decline in crude over the last four to five months has translated into a 15 percent drop in prices at the gas pump, which "theoretically could drop another 10 percent as we play catch up," said Orlando.

"Every one penny decline in retail gas adds a billion dollars of discretionary consumer spending to the U.S. economy," said Orlando, who believes lower gas prices bode well for holiday spending and gross domestic product, or GDP, given consumer spending accounts for 70 percent of U.S. economic growth.

Another positive driver is a drop in mortgage rates below 4 percent, which should spur refinance activities and also boost consumer spending, Orlando said.

On Thursday, U.S. stocks ended little changed, with the Dow industrials recouping much of a 206-point deficit, as investors balanced worries about global growth against mostly better-than-expected U.S. earnings and economic reports.

Read More Dow off for 6th day in longest loss streak of 2014