By Corrie Driebusch and Riva Gold 

The Dow Jones Industrial Average slipped Friday but notched its biggest three-week gain since the period following the 2016 election, a dramatic bounceback from its late-December selloff.

Investor appetite for stocks returned in recent trading sessions, boosted by a rebound in energy prices; data suggesting the U.S. economy is still growing; the Federal Reserve's reassurances that it would adjust its pace of tightening monetary policy if needed; and hopes for progress in U.S.-China trade relations.

The Dow industrials are up 10% since their Christmas Eve trough, rising 6.9% over the past three weeks. On Friday, the blue-chip index slipped 5.97 points, or less than 0.1%, to 23995.95 as falling energy prices dragged oil-and-gas companies lower, a reminder of how tenuous gains can be when markets are choppy.

The S&P 500 dropped 0.38 point, or less than 0.1%, to 2596.26. Energy companies in the index fell the most, down 0.6%, as the price of U.S.-traded crude oil fell for the first time in almost two weeks. The Nasdaq Composite declined 14.59 points, or 0.2%, to 6971.48.

But even with Friday's declines, all three major U.S. indexes ended the week at least 2% higher, their third consecutive week of gains. The Dow posted its largest three-week percentage gain since the week ended Nov. 25, 2016.

The recent rally will be tested again next week as major companies, including many big banks, begin reporting fourth-quarter earnings.

Uncertainty around the trade outlook led analysts in December to rapidly downgrade their forecasts for corporate earnings. Companies in the S&P 500 are now forecast to grow their earnings by 11% in the fourth quarter, down from a forecast of 18% in July, according to FactSet.

"Earnings estimates were slashed in anticipation of a trade war," said Mike Thompson, head of S&P Investment Advisory Services. Apple issued a rare sales warning earlier this month, triggering a steep drop in its shares and the broader market. Other companies, including airlines Delta Air Lines and American Airlines, as well as retailers such as Macy's, also have lowered their sales or profit forecasts.

On Friday, shares of Vail Resorts tumbled $27.30, or 13%, to $187.33 after the mountain-resort operator said its preholiday period was much slower than anticipated.

In a sign of a positive shift, General Motors increased its profit guidance for 2018 and predicted a stronger performance in 2019. GM's stock jumped 2.45, or 7.1%, to 37.18.

Cautious optimism has also been spreading in other corners of the market.

Federal Reserve Chairman Jerome Powell reiterated the central bank's flexible outlook on raising rates at a Thursday 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% chance of one or more additional interest-rate rises by late June, compared with a 45% chance a month ago, according to Fed-funds 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.

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 anticipates 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.

Write to Corrie Driebusch at corrie.driebusch@wsj.com and Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

January 11, 2019 17:20 ET (22:20 GMT)