By Joe Wallace and Karen Langley
U.S. stocks fell Wednesday, extending their recent declines after fresh data showed the rise in consumer prices picked up speed in April.
The S&P 500 dropped 1.2%, after starting the week with its biggest two-day decline since early March. The Dow Jones Industrial Average retreated 0.9%, or about 300 points, while the tech-heavy Nasdaq Composite slumped 1.9%.
The consumer-price index jumped 4.2% in April from a year before, the Labor Department said Wednesday, the highest 12-month level since the summer of 2008.
The index measures what consumers pay for goods and services such as clothes, restaurant meals and vehicles. Core prices, which exclude the volatile categories of food and energy, rose 3% from a year earlier.
The increase in prices was steeper than economists had expected.
"That's starting to get investors a little bit nervous here since we are trading still near all-time highs across the equity market," said Tony Bedikian, head of global markets at Citizens.
The S&P 500 on Friday notched its 26th record close of the year. It has since fallen 3%.
Concerns that a burst of inflation may prove more intense and longer-lasting than investors had expected sharpened focus on the data. Signs of mounting inflation have weighed on stocks this week. Rising commodity markets, supply-chain blockages and hiring difficulties have prompted some investors to expect a prolonged upswing in consumer prices.
That could lead the Federal Reserve to raise its target for short-term interest rates sooner than it has signaled, potentially weighing on stocks and other assets that have benefited from over a year of near-zero borrowing costs. For their part, several Fed officials have said the economy still needs support from low rates.
Bond yields jumped in response to the inflation data. The yield on the benchmark 10-year U.S. Treasury note climbed to 1.684%, from 1.623% Tuesday. Yields rise as bond prices fall.
A quicker pace of inflation has generated worries that the Fed will pare back its efforts to stimulate the economy through low rates and bond-buying, according to Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald.
"Clearly this is the news that markets had started to fear last week when the U.S. employment number came out," said Mr. Park. Higher inflation adds to evidence that a slowdown in hiring stemmed from difficulties finding workers as opposed to lower demand for employees, he added.
Other factors have also knocked down stocks in recent days, including signs that the U.S. economy -- while still expanding at a fast clip -- has passed its peak rate of growth, said Anna Stupnytska, global economist at Fidelity International. The market was also vulnerable after a steep run-up in prices at the start of the year.
"The main worry is that...because of inflation moving higher, central banks will start tightening," Ms. Stupnytska said. She thinks U.S. inflation will subside next year and that the Fed won't hike rates until well into 2023. Still, multiasset funds at Fidelity International have bought Treasury inflation-protected securities, gold and industrial metals as a hedge against inflation.
Among individual stocks, shares of FuboTV advanced 11% after the sports streaming company reported that revenue more than doubled in the first quarter and boosted its guidance. Shares of Houlihan Lokey gained 5.4% after the investment-banking services firm reported record revenue for its fiscal year and raised its dividend.
In commodity markets, Brent-crude futures, the benchmark in energy markets, rose 1.8% to $69.79 a barrel. The glut of crude and oil products that built up near the start of the pandemic has mostly cleared in members of the Organization for Economic Cooperation and Development, the International Energy Agency said in a monthly report.
Overseas markets were mixed. Gains for telecom stocks helped to push the Stoxx Europe 600 up 0.3% after the index on Tuesday posted its biggest one-day fall since December.
In Asian markets, Taiwan's Taiex tumbled 4.1% after the government tightened coronavirus restrictions. Japan's Nikkei 225 fell 1.6%, while China's Shanghai Composite rose 0.6%.
Write to Joe Wallace at Joe.Wallace@wsj.com and Karen Langley at email@example.com
(END) Dow Jones Newswires