By Joe Wallace and Gunjan Banerji
U.S. stocks staged a powerful rebound following their steepest
selloff since October, but recorded losses for the week.
The week was marked by sharp stock swings in both directions,
with a recent stock-market rally almost as strong as the initial
selloff, as investors parsed inflation data.
The S&P 500 rose 61.35 points, or 1.5%, to 4173.85 on
Friday, with gains accelerating in the afternoon. The Dow Jones
Industrial Average added 360.68 points, or 1.1%, to 34382.13. The
Nasdaq Composite advanced 304.99 points, or 2.3%, to 13429.98. The
gains built on a rally that began Thursday, when major indexes
snapped a three-session losing streak.
Still, stocks ended the week with losses. The S&P 500 and
Dow each lost at least 1.1%. The tech-heavy Nasdaq was the hardest
hit, losing 2.3% for the week and logging its fourth consecutive
week of declines, the longest such stretch since August 2019.
Stocks tumbled earlier in the week after new data showed that
consumer prices leapt to a 13-year high in April. Prices on
everything from cars to hotel-room rates rose, fueled by strong
demand from consumers as Covid-19 restrictions have been eased and
supply shortages. Investors worry that a surge in prices for raw
materials will eat into profit margins and 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.
Some sectors were harder hit. The S&P 500 growth index fell
2.1% this week, its worst week since February. ARK Investment
Management's flagship innovation exchange-traded fund lost 4.9%
this week, while Tesla shares dropped 12%. Bitcoin prices also
sputtered as Tesla Chief Executive Elon Musk said the company
suspended accepting bitcoin as payment for its vehicles.
The inflation fears and falling share prices 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.
The government bond market didn't offer a hedge to investors
looking to shield themselves from the volatility of the stock
market, as investors also sold Treasurys on worries about
inflation. The yield on 10-year Treasury notes rose to 1.639%, up
from 1.576% last week. Yields rise when bond prices fall and rising
inflation chips away at the purchasing power of the bonds' fixed
payments.
But several Fed officials have said in recent days that the
central bank has no plan to withdraw support, helping to quickly
calm markets and fueling the rebound. 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.
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.
Buyers have rapidly stepped in to the market. U.S. stock funds
drew the most inflows since March in the week ending May 12,
according to EPFR. That made it the seventh consecutive week of
inflows to U.S. stock funds despite the turbulence, the longest
such streak since the second quarter of 2018.
"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.
Despite the stock-market rebound, some investors said they
thought the market was still due for a pullback after its
tremendous run-up this year. Many individual investors have jumped
into the market, often buying on small dips in stocks. And even
after this week's declines, the S&P 500 is off just 1.4% from
its record hit on May 7.
"I feel like we're overdue for a little bit of a breather.
Making money isn't supposed to be this easy. It's not supposed to
be a one way trade, " said John Porter, chief investment officer of
equities at Mellon Investments.
In corporate news, Walt Disney shares fell $4.64, or 2.6%, to
$173.70 after the company 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 $25.58, or
around 22%, to $141.07 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 other
bright spots in the market this week, continuing a string of wild
moves for meme stocks. Reddit-favorite AMC Entertainment climbed
36% this week. Hertz Global Holdings shares have almost doubled
this week as prospects brightened for stockholders in the company,
which is set to emerge from bankruptcy.
Brent-crude futures, the benchmark in energy markets, rose for
the third consecutive week to $68.71. Copper futures in New York,
which hit a record Tuesday, slipped 0.9% to $4.66.
A recent surge in commodity prices has sharpened focus among
investors on companies that are likely to see profits pinched by
higher input costs.
Stock markets around the world also notched gains. In overseas
markets, the Stoxx Europe 600 gained 1.2% Friday. Major Asian
markets rallied. Japan's Nikkei 225 gained 2.3% and China's
Shanghai Composite Index rose 1.8%.
"We still think the stock market has an upside from here until
the year end," said Melda Mergen, deputy global head of equities at
Columbia Threadneedle.
Write to Joe Wallace at joe.wallace@wsj.com and Gunjan Banerji
at gunjan.banerji@wsj.com.
(END) Dow Jones Newswires
May 14, 2021 17:22 ET (21:22 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.