Stocks erased their earlier losses to eke out small gains Friday, with the Dow squeezing out its fifth-consecutive weekly rally, as investors digested the latest batch of mixed earnings reports and ahead of a busy economic calendar next week.
The Dow Jones Industrial Average recovered to finish up 3.22 points, to close at 15,558.83, led by Travelers and Intel. The blue-chip index plunged nearly 150 points at its session low.
The S&P 500 squeezed out a gain of 1.40 points to end at 1,691.65. And the Nasdaq added 7.98 points to close at 3,613.16. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, finished below 13.
For the week, the Dow eked out a gain of 0.10 percent, while the S&P 500 dipped 0.03 percent to cap its first weekly loss in five weeks. The Nasdaq posted a weekly gain of 0.71 percent. Hewlett-Packard was the best weekly performer on the Dow, while Caterpillar sagged.
"The market's had a good run near the highs and with earnings season about halfway through, we characterize the results so far as being lackluster to just OK," said Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors. "As the year progresses, we're expecting the economy to start coming out of some of the doldrums from the fiscal impediments from earlier in the year—so we're expecting a better second half and that should help support the market and provide us with the basis to have prices move forward."
(Read more: S&P 500 ready for another pullback?)
On the economic front, consumer sentiment rose to its highest level in six years, with the Thomson Reuters/University of Michigan's final reading on the overall index climbing to 85.1 in July from 84.1 in June. Economists surveyed by Reuters expected a reading of 84.
"This high level of confidence points toward a continued expansion of consumer spending in the year ahead," survey director Richard Curtin said in a statement.
But investors initially shrugged off the positive data, with the Dow plunging nearly 150 points soon after the report.
"With the Fed meeting and non-farm payrolls due next week, there will be plenty of news to move the market in the week ahead," said Rebecca O'Keeffe, head of investment at Interactive Investor. "U.S. data has been more mixed in recent weeks, suggesting that next Friday's employment report may not be as good as recent months, in part because the housing market does look to have softened in light of higher interest rates."
Separately, a White House official said President Obama will not likely announce a decision about who will lead the Federal Reserve until the fall. Current Chairman Ben Bernanke's term expires next January.
(Read more: Changes to Fed 'forward guidance' could lead to this)
Among earnings, Amazon.com declined after the Internet retail giant reported an unexpected loss and issued a cautious current-quarter forecast as it continues to invest in new areas like cloud computing services. At least three brokerages raised their price targets on the company.
Starbucks rallied after the coffeehouse chain topped earnings expectations and also forecast current-quarter profit above Street consensus. The company also boosted its full-year guidance as its new menu offerings helped drive customer traffic. At least two brokerages lifted their price targets on the company.
Zynga plunged more than 20 percent after the social video game maker handed in current-quarter guidance that widely missed forecasts. In addition, the company said it has decided not to pursue a license for real money gambling in the U.S. At least two brokerages slashed their price targets on the firm.
Expedia dropped sharply after the travel website posted quarterly results that disappointed analysts. At least two brokerages lowered their price targets on the firm.
More than 50 percent of S&P 500 companies have reported results so far this quarter, with 68 percent of firms topping earnings expectations and 56 percent beating revenue estimates, according to data from Thomson Reuters. If all remaining companies report earnings in line with estimates, earnings will be up 4.1 percent from last year's second quarter.
Activision Blizzard surged after the videogame publisher said it will buy back nearly $8.2 billion worth of Vivendi's holding in the company.
Japan's Nikkei tumbled to its lowest level in nearly three weeks, as the yen strengthened against the dollar, following an inflation report.
"They looked good with the headline number, but when you dig down and take energy out, they were deflationary again," said Art Cashin, director of floor operations at UBS Financial Services. "That spooked the Japanese market and the yen spiked against the dollar."
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up Next Week:
MONDAY: Pending home sales, Dallas Fed mfg survey; Earnings from Hertz, Express Scripts, Hartford Financial, Herbalife
TUESDAY: S&P Case-Shiller home price index, consumer confidence, FOMC mtg begins, Google Nexus 7 on sales; Earnings from Barclays, BP, Chrysler/Fiat, Deutsche Bank, Merck, Pfizer, UBS, Aetna, NYSE Euronext, Amgen, Aflac, Symantec, Take Two Interactive
WEDNESDAY: MBA mortgage applications, ADP employment report, GDP, employment cost index, Chicago PMI, oil inventories, FOMC mtg announcement, farm prices, Booz Allen Hamilton investor call, Electronic Arts shareholder mtg; Earnings from Comcast, Honda, MasterCard, Hess, Humana, Sodastream, Allstate, CBS, Marriott, MetLife, Whole Foods, Dreamworks Animation, Yelp
THURSDAY: Challenger job-cut report, jobless claims, PMI manufacturing index, ISM mfg index, construction spending, natural gas inventories, Fed balance sheet/money supply, auto sales, JCPenney vs. Martha Stewart closing arguments, Michael Kors shareholder mtg, Motorola Moto X launch; Earnings from AstraZeneca, ConocoPhillips, ExxonMobil, P&G, Royal Dutch Shell, Barrick Gold, Cigna, Clorox, Time Warner Cable, AIG, Kraft Foods, LinkedIn, Leap Wireless
FRIDAY: Nonfarm payrolls, personal icome & outlays, factory orders, Congress breaks for summer, Dell shareholders mtg, Detroit bankruptcy hearing; Earnings from Chevron, Toyota, Viacom
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