The mood remains sober on Wall Street despite a week of solid gains, with many traders still cautious about the economy and still smarting over the heavy selloff earlier in the month.
The Dow Jones Industrial Average climbed 1.24 percent for the week to end at 11,278.61 on Friday ahead of the Memorial Day holiday weekend.
The tech-heavy NASDAQ rose 0.75 percent for the week to 2,210.37 and the broad-market Standard & Poor's 500 advanced 1.04 percent to 1,280.16.
The market steadied over the past week after a precipitous decline sparked by worries about rising inflation and interest rates at the same time the US economy appears to be cooling.
But the volatility in recent weeks has put a scare into many investors.
"Watching the market's gyrations over the past two weeks has given me an upset stomach," Wells Fargo senior economist Scott Anderson said.
"No equity or commodity market has been safe from the bloodletting as investors have taken shelter from the storm in bonds and cash. Equity analysts have been at a loss to explain the market's behavior, alternatively chalking the volatility up to concerns about inflation and growth while adding the caveat that the Fed could go too far on rate hikes," he said.
Dick Green at Briefing.com said the market appears to be settling down after excessive swings in both directions, adding that his outlook for the market is "neutral."
"The market had gotten overly pessimistic, just as it was overly optimistic in April," he said. In reality, the fundamentals haven't changed much at all over the past two months.
"The market action of recent weeks looks like a classic correction," said Linda Duessel, analyst at Federated Investors.
"We think a bear market -- a decline of 20 percent, or more -- is unlikely in the near term. But, as we noted, corrections of 10 percent aren't unusual. For all of 2006, Federated continues to expect mid-to-high, single-digit gains for US stocks," she said.
Investors are monitoring a shifting economic landscape. Although data showed the US economy grew at a 5.3 percent pace in the first quarter, most see slower growth ahead, easing pressure on the Federal Reserve to lift interest rates.
This scenario, analysts say, should ease inflation jitters, but the other question is how quickly the economy cools. The worst-case scenario would be "stagflation," which implies economic stagnation with inflation surging.
"Over the past two weeks, the market's concern that US growth might slow significantly seems to have eclipsed worries that the Fed might be falling `behind the curve' as inflation edges up," said Goldman Sachs economist Jan Hatzius.
"In short, the focus has shifted to `stag' from `flation.'"
Anderson said that despite the rocky ride, economic conditions appear reasonably good for the market, especially if the slowdown allows the Federal Reserve to stop or pause in its campaign of rate hikes.
"In the end, economic fundamentals have not been adversely affected by the downdraft in equities, and in many ways growth and inflation conditions have actually become more conducive for a Fed pause in June," he said.
The bond market held steady in the past week. The yield on the 10-year US Treasury bond dipped to 5.0562 percent from 5.054 percent a week earlier and that on the 30-year bond edged up to 5.157 percent from to 5.137 percent. Bond yields and prices move in opposite directions.