Traders on the floor of the New York Stock Exchange.

Source: The New York Stock Exchange

Tech stocks lifted the broader market higher in volatile trading on Friday, rebounding from steep losses after a key inflation gauge showed tame price pressures.

The Nasdaq Composite jumped 1.7% as Apple, Facebook and Microsoft each rose more than 2%. The tech-heavy benchmark swung wildly in Friday’s session and fell as much as 0.7% at one point. The S&P 500 gained 0.6%, while the Dow Jones Industrial Average fell 150 points, led by Salesforce and Chevron.

Some investors took comfort in the new reading of the personal consumption expenditures price index that indicated subdued inflation in January. The PCE index, which the Federal Reserve watches closely, rose 0.3% for the month, slightly ahead of the 0.2% expectation but was up just 1.5% year over year, matching Dow Jones estimates. 

Treasury yields initially fell following the inflation data release, but later bounced off the lows. The 10-year yield last traded near 1.5% after surging above 1.6% at one point on Thursday. The 10-year rate is up more than 50 basis points since the year began, a sharp rise for a bond rate used as a benchmark for mortgage rates and auto loans.

“If the market begins to believe that the Fed has somehow lost control of where the bond market is going, all that idea of a taper tantrum will show up,” Art Cashin, director of floor operations at UBS, said Friday on CNBC’s “Squawk on the Street.”

Popping interest rates alarmed equity investors and pushed the Nasdaq Composite to its worst session since October a day earlier. The Dow dropped 559 points, pulling back from a record high. The S&P 500 lost 2.5% while the tech-heavy Nasdaq shed 3.5%.

Economists and investment managers say the bond market is reacting to positive economics as vaccines are rolled out and GDP forecasts improve, which should benefit corporate profits. But the move could also signal faster-than-expected inflation ahead.

The sheer pace of the rise has also had the effect of dampening investors’ appetite for richly valued areas of the market. Higher rates reduce the value of future cash flows so they can have the effect have compressing equity valuations. Thursday’s jump in the 10-year yield also put it above the S&P 500′s dividend yield, meaning that equities — which are considered riskier assets — have lost that fixed-payment premium over bonds.

“Until recently, market participants have been able to digest the upward drift in long-term rates, but it appears that the next leg up in interest rates is a bigger bite to chew,” Charlie Ripley, senior investment strategist for Allianz Investment Management, said in an email.

“Looking at where real yields were at, they were simply too low when considering growth expectations, and it’s likely that long-term real yields will continue to drift higher as economic data improves,” he added.

Popular big-tech stocks like Alphabet, Facebook and Tesla, all of which began the year on strong footing, dropped 3.2%, 3.6% and 8% on Thursday. Apple, one of the largest, cash-heavy companies in the world, has seen its stock slide more than 15% over the last month.

Instead of tech, where companies tend to borrow more on average, investors are shifting money into so-called reopening trades, buying the stock of companies that would benefit most from the vaccine rollout and a return to regular travel and dining trends.

Energy has gained 6.8% this week alone, the biggest winner by far amid expectations that consumers around the world will soon be driving and flying as they were prior to the Covid-19 pandemic. Industrials and financials are the only two other sectors in the green week to date.

The S&P 500 is down 2% so far this week, while the Nasdaq has lost 5%. The Dow Industrials is down 0.3%.

— CNBC’s Kevin Stankiewicz contributed reporting.

Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.