Wall Street ends a wild week close to where it began

Stocks closed a wild, whipsaw week for Wall Street with modest gains.

The Standard & Poor’s 500 rose 0.5% on Friday, coming off its best day since 2022 and trimming its loss for the week down to 0.1%. The Dow Jones industrial average rose 0.1%, and the Nasdaq composite added 0.5%. Both also finished the week with only modest losses after sharp drops earlier on worries about the U.S. economy and other factors.

The gains pulled the S&P 500 back within 6% of its all-time high set last month after it briefly sank nearly 10% below that high during the week. But the vicious return of volatility, which shattered what had been a placid run for stocks and saw a measure of fear on Wall Street surge toward its highest level since the 2020 COVID crash, may not be over. Worries are still high about the strength of the U.S. economy, and reports are due next week on inflation, sales at retailers and other measures of economic strength.

For Friday, the mood was still calm after more big U.S. companies joined the pile that has reported better profit for the spring than analysts expected.

Expedia Group jumped 10% after delivering stronger results than forecast, though it said it saw a softening of demand in July along with some other companies. Take-Two Interactive rose 3.5% after the company behind the Grand Theft Auto and NBA 2K video games likewise reported a better profit than expected.

The gains followed a mixed performance for stocks worldwide, which have also been frenetic since last week because of a number of factors slamming into markets all at once. At the forefront is the value of the Japanese yen, whose sudden and sharp strengthening recently has forced hedge funds and other traders to scramble out of a popular trade en masse.

They had been borrowing Japanese yen at very low cost and then investing it elsewhere around the world, but a hike to interest rates by the Bank of Japan forced many to abandon the trade at the same time and sent global markets reeling. A promise by a top Bank of Japan official in the middle of the week not to raise rates further as long as markets are “unstable” helped stabilize the yen.

Worries about a slowing U.S. economy have been weighing on the market. A raft of weaker-than-expected reports has raised questions about whether the Federal Reserve has kept interest rates too high for too long in order to beat inflation. Investors were spooked by last Friday’s report showing much weaker hiring by U.S. employers than expected.

Such worries dragged Treasury yields lower in the bond market this week, and they fell again Friday. Yields have dropped as investors look for safer places for their money and as expectations have also grown for deeper cuts to rates from the Fed. The yield on the 10-year Treasury fell to 3.94% from 3.99% late Thursday.

After seemingly getting the Bank of Japan to stop hiking rates for now, Wall Street’s goal “now appears to be bossing the Fed into big rate cuts,” Bank of America strategist Michael Hartnett said in a BofA Global Research report.

Reports next week could drive more swings for the market. On Thursday will come an update on how much shoppers are spending at U.S. retailers. Households at the lower end of the income spectrum have been struggling for a while to keep up with still-rising prices, but economists expect the report to show a return to growth after a stall in retail spending during June.

Another report on Thursday will show how many U.S. workers are applying for unemployment benefits. The most recent such report raised hopes for the economy after the prior week’s data frightened investors.

Looming over it all will be the latest updates on inflation. A worst-case scenario would be if Tuesday’s and Wednesday’s updates on inflation show higher-than-expected rises in prices at the wholesale and consumer levels while the week’s other reports show a sharp weakening of the economy.

That would be a toxic mix for the Federal Reserve, which doesn’t have a good way to fix such a mess. The central bank could lower interest rates, which would give the U.S. economy an upward push but also threaten to worsen inflation. Or it could keep its main interest rate at a two-decade high, where it’s been roughly a year. That would put downward pressure on inflation but also inflict more pain on the economy.

To be sure, even though the U.S. economy is slowing, it is not in a recession. And many economists still see one as unlikely.

A third factor that has sent markets spinning recently is increased skepticism about Wall Street’s rush into artificial intelligence technology and how much profit growth it will really produce.

The frenzy around AI allowed a handful of major tech stocks to drive the S&P 500 to dozens of all-time highs this year, even as high rates weighed on other areas of the market. But the group of stocks known as the “Magnificent Seven” lost momentum last month amid criticism that investors had gotten carried away and taken their prices too high.

How this handful of stocks performs carries extra weight on the S&P 500 and other indexes because they’re by far the market’s most valuable companies. They were mostly higher Friday after Taiwan Semiconductor Manufacturing Co., a major chip producer, said its revenue in July soared nearly 45% from a year earlier. TSMC’s stock that trades in the United States rose 1.8%.

Nvidia, a key maker of chips used in AI applications, slipped 0.3% after flipping between losses and gains.

Choe writes for the Associated Press.