By Joe Wallace and Gunjan Banerji 

U.S. stocks staged a powerful rebound Friday following their steepest selloff since October, but remained on track to record losses for the week.

The S&P 500 rose 1.3% in recent trading, with gains accelerating midday. The Dow Jones Industrial Average added about 282 points, or 0.8%. The Nasdaq Composite advanced 1.9%. The gains build on a rally that began Thursday, when major indexes snapped a three-session losing streak.

Still, stocks are poised for weekly losses. The S&P 500 has fallen 1.6% this week, while the Dow is down 1.4%. The tech-heavy Nasdaq has been the hardest hit, losing 2.8% for the week.

Stocks tumbled earlier in the week after new data showed that consumer prices leapt in April, which added to evidence from commodity markets of building inflation. Investors worry that a surge in prices for raw materials will eat into profit margins. A burst of consumer-price inflation could also prompt the Federal Reserve to pare back easy-money policies that have buoyed stocks.

Investors fled stocks, particularly some of the fast-growing companies that many had favored over the past year. The S&P 500 and Dow suffered their worst three-day losses in nearly seven months to start the week.

ARK Investment Management's flagship innovation exchange-traded fund has fallen 5% this week, while Tesla shares have dropped 14%.

The inflation fears and falling share prices also triggered a surge in bearish options activity tied to the S&P 500, with some traders positioning for steeper declines. Bearish options changing hands hit the highest level of the year on Wednesday, Trade Alert data show, while a measure of stock volatility jumped this week.

But several Fed officials have said in recent days that the central bank has no plan to withdraw that support, helping to calm markets. The Fed needs to see several more months of data on jobs and inflation before determining when to begin tightening monetary policies, Gov. Christopher Waller said Thursday.

And some investors and analysts said they were reluctant to draw conclusions from the data released this week and remained confident that the Fed would be patient in terms of raising interest rates.

As a result, the week has been marked by sharp stock swings in both directions, with the stock-market rebound almost as strong as the initial selloff. Major indexes bounced Thursday following three sessions of declines and continued to advance to end the week.

"The Fed has been very consistent," said Paul Donovan, chief economist at UBS Global Wealth Management. "That is telling you something: it is telling you [higher inflation] clearly is transitory."

Nonetheless, Mr. Donovan said he expects markets to remain jumpy in response to higher inflation numbers in the coming months. "There will be volatility in the near term over this: not just volatility over inflation, but volatility over the central bank response to that," he said.

Retail sales were unchanged in April from a month before, the Commerce Department said. Economists had expected a rise of 0.8%, following a surge in spending in March, when government stimulus checks boosted household incomes. And fresh data released early Friday showed that consumer sentiment weakened in May as inflation expectations ticked up.

In corporate news, Walt Disney shares fell 3.5%. Disney said late Thursday that its flagship streaming service added fewer users than Wall Street had expected in its fiscal second quarter after months of torrential growth.

While the Covid-19 streaming boom is slowing for now, other pandemic trends appear to be stickier. DoorDash gained more than 20% after saying revenue tripled in the first quarter, showing sustained demand for food-delivery services even as coronavirus vaccinations picked up.

Some of individual investors' favorite stocks were among the rare bright spots in the market this week, continuing a string of wild moves for meme stocks. Reddit-favorite AMC Entertainment climbed 8.5%, extending gains after rocketing higher Thursday. Hertz Global Holdings shares have more than doubled this week as prospects brightened for stockholders in the company, which is set to emerge from bankruptcy.

And this week, the government bond market didn't offer a hedge to investors looking to shield themselves from the volatility of the stock market. Treasury prices have fallen this week alongside stocks, sending yields higher, on rising worries about inflation. In the bond market, the yield on 10-year Treasury notes recently hovered at 1.625%, from 1.576% last week. Yields fall when bond prices rise and rising inflation chips away at the purchasing power of the bonds' fixed payments.

Brent-crude futures, the benchmark in energy markets, rose 1% to $67.75 a barrel in recent trading. Copper futures in New York, which hit a record Tuesday, slipped 1.1% to $4.64 a pound.

A recent surge in commodity prices has sharpened focus among investors on companies that are likely to see profits pinched by higher input costs.

"There is more pricing pressure and that will be harder on certain companies," said Andrew Sheets, chief cross-asset strategist at Morgan Stanley. Consumer-discretionary stocks in the U.S. are most vulnerable, while banks and other financial firms are relative beneficiaries because they have minimal raw-material inputs, he added.

In overseas markets, the Stoxx Europe 600 gained 1.2%.

Major Asian markets rallied. Japan's Nikkei 225 gained 2.3%, China's Shanghai Composite Index rose 1.8% and Taiwan's Taiex added 1%.

Write to Joe Wallace at joe.wallace@wsj.com

(END) Dow Jones Newswires

May 14, 2021 12:29 ET (16:29 GMT)

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