What happened

Commodity stocks flew high on Friday, with some even clocking double-digit percentage gains during the day. Some of the biggest gainers included Alcoa (AA -0.23%), Chevron (CVX 0.75%), and Freeport-McMoRan (FCX 0.68%). At their highest points in Friday trading as of 1 p.m. ET, these stocks had rallied 15.8%, 3%, and 6.8%, respectively.

Two C's drove Friday's rally in these stocks: China and commodity prices. And chances are, this rally could last longer than you might expect.

So what

China's zero-COVID policy has dealt a heavy blow to the economy and investor sentiment in recent months. With a property crisis hurting the real estate sector and COVID curbs hitting manufacturing activity, China's appetite for commodities dried up too.

China is the world's largest consumer of base metals like iron, aluminum, and copper, and is also among the world's largest consumers of oil. Lower demand from the nation unsurprisingly drove prices of commodities lower, and the ripple effects could be seen in the prices of stocks across the sector.

In an unexpected turn of events on Friday, China announced plans to ease some of its COVID curbs to reduce their impact on its people and the economy, according to The Wall Street Journal. Since it's the first such significant step by China to ease COVID rules, the development sent prices of nearly every major commodity surging as investors bet on a recovery in demand from the nation. That includes iron ore, aluminum, copper, zinc, and oil.

Prices of zinc and aluminum, for example, jumped nearly 6% and 5%, respectively, on the London Metal Exchange on Friday, according to Bloomberg. Copper prices hit levels last seen in June, and crude oil prices were up around 2.5% as of this writing.

Friday also brought more cheer to the commodity and stock markets after the latest Consumer Price Index (CPI) data reflected a slower-than-expected growth in inflation in the U.S. in October. Combined, the two factors gave investors a big reason to buy commodity stocks, especially shares of prominent companies.

AA Chart

AA data by YCharts

While Alcoa is the world's largest producer of alumina, which is used to produce aluminum, Freeport-McMoRan is among the world's largest producers of copper. Chevron, for its part, is one of the leading oil and gas producers in the world.

Now what

With prices of base metals falling sharply in recent months, both Alcoa and Freeport-McMoRan realized significantly lower prices on their sales volumes in the third quarter. Alcoa even slashed its guidance for alumina and bauxite shipments for 2022, partly because of lower demand.

It should therefore come as no surprise to see the market bid these languishing stocks higher on Friday after metal prices rebounded. 

Chevron, though, is an outlier, having hugely outperformed the markets so far this year. With oil and gas prices skyrocketing this year, Chevron has made boatloads of money. In the third quarter, it generated record cash flow from operations, and its quarterly net income was the second highest in history.

Chevron stock's move on Friday clearly indicates that investors still see an upside in the oil stock even after its stupendous rally in 2022 and along with that, also expect a big dividend raise from the oil stock in early 2023.