After a week of significant market volatility, U.S. stocks managed to claw back some gains on Friday, ending the week almost exactly where they started. The S&P 500 closed with a 0.3% increase in late trading, reducing its weekly loss to 0.2%. The Dow Jones Industrial Average saw a marginal upward movement of 2 points, while the Nasdaq composite showed a 0.3% gain.

These gains brought the S&P 500 within 6% of its all-time high, reached last month, after briefly plunging nearly 10% below it earlier in the week. The return of extreme volatility, which shattered the previously calm stock market environment, brought about heightened fears on Wall Street, with market sentiment reaching its highest level since the 2020 COVID crash. However, concerns persist regarding the strength of the U.S. economy, with reports on inflation, retail sales, and other economic indicators due next week.

Despite mixed performances in global markets, multiple large U.S. companies reported better-than-expected profits for the spring season, leading to a calmer mood among investors on Friday. Expedia Group's stronger-than-forecast results pushed its stock up by 10%, while Take-Two Interactive, the company behind popular video games like Grand Theft Auto and NBA 2K, saw a 3.5% increase in their shares after reporting higher profits than anticipated.

The frenetic market movements over the past week were triggered by a confluence of factors. Chief among them was the sudden strengthening of the Japanese yen, impacting hedge funds and traders who were forced to abandon a popular trade that involved borrowing yen at low interest rates and investing it globally. The Bank of Japan's decision to halt further rate hikes temporarily stabilized the yen.

Additionally, concerns about a slowing U.S. economy weighed on the market, as weaker-than-expected economic reports sparked questions about whether the Federal Reserve has maintained interest rates at a level that hampered economic growth. Weaker hiring data, released last Friday, added to these worries.

Against this backdrop, Treasury yields fell lower this week as investors sought safer havens for their capital. The prospect of deeper rate cuts from the Federal Reserve further contributed to the decline in yields. On Friday, the yield on the 10-year Treasury remained at 3.94%, down from 3.99% the previous day.

Moving forward, market volatility is expected to continue amidst upcoming reports on retail spending, unemployment applications, and inflation. Economists anticipate a return to growth in retail spending after a brief stall in June. However, the impact of higher-than-expected inflation rates, coupled with a weakened economy, could pose a dilemma for the Federal Reserve as it navigates between interest rate adjustments that could either boost economic growth or worsen inflation.

While the U.S. economy is currently experiencing a slowdown, the possibility of a recession remains unlikely, according to many economists. Yet, increased skepticism surrounds the rush into artificial intelligence (AI) technology, with concerns over the reality of profit growth. The performance of key AI stocks, often referred to as the "Magnificent Seven," carries significant weight in the market, as they represent the most valuable companies. Taiwan Semiconductor Manufacturing Co.'s robust revenue growth in July provided a boost to these stocks, with Nvidia, a prominent AI player, seeing slight fluctuations in its stock price.

Despite the uncertainty surrounding market trends and economic conditions, strong corporate earnings have provided a ray of optimism for investors. As Wall Street awaits next week's economic reports, the hope for stability and sustained growth lingers in the minds of traders and financial analysts alike.

Contributor: Matt Ott (AP Business Writer