In a rollercoaster week for the stock market, volatility levels reached new heights as the yen carry trade unraveled, sparking fears of a broader de-risking. The week began with rising recession risks and the swift unwinding of the yen carry trades, causing stocks to plummet. However, by the end of the week, the S&P 500 recorded its best two-day gain of the year, providing some relief to investors.

The CBOE Volatility Index, also known as the market's fear gauge, closed the week just above its long-run mean at 20.37. This marks a substantial improvement from its peak above 65 on Monday, a level associated with panic and fear. While the recovery in markets is encouraging, top Wall Street strategists caution against jumping to conclusions and urge investors to proceed with caution.

Veteran investment strategist Ed Yardeni attributes much of the volatility to the unwinding of the yen carry trade. This trade involves borrowing at ultra-low interest rates in Japanese currency and investing the proceeds in higher-yielding assets like US stocks. However, when the Japanese interest rates rise and the yen's value spikes, a sell-off ensues to cover the loans, triggering fears of a broader de-risking.

"The churn will probably continue through September or October, until the November elections," Yardeni predicts.

UBS's Solita Marcelli also expects elevated market volatility for some time, mainly due to thinner liquidity over the summer, further unwinding of the yen carry trade, uncertainty surrounding Federal Reserve policy, and the upcoming presidential election.

Market volatility may also hinge on economic data releases. Stuart Kaiser, Citi's head of US equity trading strategy, highlights the significance of inflation and job reports in calming investor nerves. While the positioning aspect of the recent sell-off seems to have stabilized, the ongoing data component will take time to settle and reengage market participants.

Thursday's notable rally following weaker-than-expected jobless claims highlights the market's skittishness regarding the risk of a recession. Wells Fargo investment president Darrell Cronk describes the rally as "unusual" and further evidence that the market is delicately balanced.

Data analysis by DataTrek reveals that when the VIX closes at 35.3 or higher, future S&P 500 returns average 2.4% over the next month and 6.9% over the next three months. As of Friday's close, the S&P 500 had already rebounded 3% from Monday's lows. However, experts advise keeping expectations modest as current market conditions remain uncomfortable.

Investors should brace themselves for further ups and downs but maintain optimism as the market navigates this uncertain period. Historical data from Goldman Sachs shows that investors typically profit when buying the S&P 500 following a 5% selloff. Over the past four decades, the S&P has generated a median return of 6% in the following three months, with positive returns reported 84% of the time.

Despite the market's turbulence, experts emphasize that current conditions do not signal a robust recession or the end of the bull market. While caution is warranted, the data provides some comfort and suggests the potential for future gains.

Overall, with market volatility expected to persist, investors should remain vigilant and evaluate investment opportunities carefully.