U.S. stocks bounced back on Friday, reversing sharp losses from the previous day, fueled by positive indicators of an improving consumer outlook on inflation. The Nasdaq notched its fifth consecutive week of gains, reaching a record closing high.

The Commerce Department's report revealed that new orders for key U.S.-manufactured capital goods exceeded expectations in April, suggesting resilience in the manufacturing sector. Additionally, the University of Michigan's consumer sentiment survey indicated an improvement in inflation expectations among consumers towards the end of May, following a dip earlier in the month.

Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle, noted the favorable data, stating, "This is a bounce where people are like, maybe things aren't as bad as we thought, maybe there's room for the Fed to cut rates and the economy's going to be OK, and we're not completely falling apart."

The Dow Jones Industrial Average edged up 4.33 points, or 0.01%, to 39,069.59. The S&P 500 rose by 36.88 points, or 0.70%, reaching 5,304.72, while the Nasdaq Composite surged 184.76 points, or 1.10%, to 16,920.79.

Although the Dow ended its five-week rally, it marked a significant recovery after experiencing its largest daily percentage decline in over a year.

Despite the mixed weekly performance, with the Dow dropping 2.34%, the S&P edging up 0.03%, and the Nasdaq gaining 1.41%, market activity remained subdued ahead of the Memorial Day holiday on Monday.