SynopsisWall Street experienced gains driven by optimism in artificial intelligence despite high oil prices and rising Treasury yields. Microsoft shares increased significantly after the launch of new AI capabilities in the Copilot app.

Negotiations to address the Middle East conflict positively influenced market sentiment among investors. However, concerns about inflation and prolonged geopolitical issues limited market enthusiasm.

Listen to this article in summarized formatAgenciesWall Street's main indexes inched higher on Friday as AI optimism buoyed sentiment despite elevated oil prices and rising Treasury yields, while investors watched efforts to secure a deal to end the Middle East conflict. Microsoft shares rose 3% and were the biggest boost to the S&P 500 after the software giant unveiled several new capabilities in its Copilot app, including a coding tool and an always-on AI agent.

Chip makers Micron and Marvell Technology gained about 1% each, while Nvidia was marginally higher. AI-related optimism was a key driver this week, aided by Meta's Muse and its integrated device, Charm, gaining traction among young consumers.

Some analysts pointed to it as a product of the massive spending on the technology. 8% from gains earlier this week."

The amount of money being deployed into the economy from AI investment is just so strong, and we haven't even seen the productivity piece of it," said Jamie Harris, managing partner at Harris Financial Group. " There's a little bit of that the market is weighing into the valuation and that's one of the reasons why you really can't get much of a selloff."

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Eight of the 11 S&P 500 sectors declined, and were offset by a 1% gain in technology — the week's best-performing sector. Both the S&P 500 and the tech-heavy Nasdaq were set for weekly advances.

A report that US and Iranian negotiators continued to explore a phased path out of the war, which would involve Tehran reopening the Strait of Hormuz and Washington lifting its economic blockade, helped market sentiment. Optimism, however, was capped by inflation worries driven by prolonged Iran and Ukraine conflicts and soaring government debt.

Traders now see a 64% chance that the Federal Reserve will increase interest rates by at least 25 basis points in October, up from around 50% earlier this week, the CME Group's FedWatch Tool showed. Remarks from policymakers such as John Williams, Jeffrey Schmid and Beth Hammack are anticipated later in the day.