By Corrie Driebusch 

Stocks climbed to records and oil prices surged this week, as investors bet the Federal Reserve will be able to forestall a downturn.

Major indexes are up more than 2.4% in July, adding to huge gains in June, even as worries about the broader U.S. economy persist. Federal Reserve Chairman Jerome Powell gave markets another positive jolt this week after he appeared to all but guarantee the central bank could cut interest rates as soon as this month, some analysts said. This sparked a wave of money into U.S. stocks.

On Friday, The Dow Jones Industrial Average gained 243.95 points, or 0.9%, to 27332.03, a day after the benchmark gauge topped 27000 for the first time. The S&P 500 rose 13.86 points, or 0.5%, to 3013.77, marking its first-ever close above 3000. The Nasdaq Composite gained 48.10 points, or 0.6%, to 8244.14. For the week, the Dow industrials gained 1.5%, the S&P 500 rose 0.8% and the Nasdaq added 1%.

The price of oil, which often tracks with investors' outlook for the global economy, also rose, with U.S.-traded crude oil jumping more than 4.5% in the past week alone.

"It's one thing to have the Fed cut, but to feel good about this you need to feel like it's really going to work. It was very encouraging to see the reaction across the board in commodities and stocks that this cut will work," said Jim Paulsen, chief investment strategist at the Leuthold Group. This reaction is what investors want to see if the economy is going to pick up, he added.

The price of U.S.-traded crude oil surpassed the psychologically important level of $60 this week, a month after prices fell into a bear market, a decline of more than 20% from their recent peaks. Sharp swings in the price of oil capture the attention of investors across asset classes, as the stock market has closely tracked its peaks and troughs in recent years. The 2016 collapse in the price of oil sparked some of the loudest calls for marketwide recession until earlier this year.

More broadly, a reversal in U.S. oil inventories has eased fears of a far-reaching slowdown in demand and excess supply, sending a reassuring signal to those who use commodity prices as an economic indicator. The rise in oil prices has been a boon for shares of producers, with the S&P 500 energy sector the broad index's best performer for the week.

"All the levers all of a sudden seem to be flipped over" for oil, said John Saucer, vice president of research and analysis at Mobius Risk Group, a Houston firm that helps energy producers manage risk.

For now, fears of recession appear to have abated, helped by Fed officials who have been indicating since early June that they could respond to any economic deterioration by cutting interest rates. This week Mr. Powell said the economic outlook hadn't improved in recent weeks, playing down some positive recent developments like a strong June jobs report and progress in trade negotiations between the U.S. and China.

Investors have interpreted such remarks to mean a rate cut as soon as later this month is inevitable, even as economic data appears to be improving. That would be a boon for stocks, although a potentially weak earnings season looms, starting in earnest next week.

"The most important thing for the market is the Fed is not going to hike rates," said Scott Wren, senior global equity strategist for Wells Fargo Investment Institute. "We have modest growth, modest inflation, we're not fighting the Fed and it looks like we'll have a trade deal, so it makes sense to me where the market is."

The stock-market rise so far this month has been broad, with consumer companies, technology firms and banks all climbing in recent weeks.

Bond yields also ticked higher, after wallowing at their lowest levels since November 2016 earlier this month. This week yields rose as data showed a larger-than-expected increase in inflation, something the Fed has been looking for after months of lackluster readings.

Investors have also been comforted by reassurances about the state of economies around the world. Minutes from the European Central Bank's recent meeting released on Thursday signaled fresh stimulus was under consideration. At the same time, data released Friday morning showed Eurozone industrial production rose sharply in May, raising hopes that the long slowdown in the region's manufacturing sector could be leveling off.

Earlier this month the Reserve Bank of Australia cut interest rates for the second time since June, and in May the Reserve Bank of New Zealand also cut its interest rates.

"Interest rates are low and they probably will remain lower for longer," said Christopher Peel, chief investment officer at Tavistock Wealth.

Amrith Ramkumar and Lauren Almeida contributed to this article

Write to Corrie Driebusch at corrie.driebusch@wsj.com

(END) Dow Jones Newswires

July 12, 2019 16:54 ET (20:54 GMT)