By Anna Isaac 

U.S. stocks ticked higher Friday, putting the S&P 500 index on track for posting muted gains this week as a sharp rally in American markets shows signs of faltering.

Investors are, on one hand, concerned about the escalating U.S. tensions with China as well as rising coronavirus infections and the potential economic fallout. On the other hand, signs of progress in developing vaccines, data showing business activity is reviving where lockdowns have been eased, and confidence that central banks and governments will do more has helped buoy optimism and driven markets higher for weeks.

The S&P 500 rose 0.3% in early New York trading, while the Dow Jones Industrial Average added 46 points, or 0.2%. Elsewhere, the Nasdaq Composite Index advanced 0.3%, while the pan-continental Stoxx Europe 600 edged up 0.4% and major Asian equity benchmarks ended the day mixed.

"We've kind of reached the limits in terms of a fairly strong rally in risk assets," Derek Halpenny, head of global research in Europe at MUFG bank. "I think we need some concrete confirmation of some policies that appear priced into the market. The European recovery fund is one. In the U.S. the markets are expecting a fresh fiscal stimulus and they need to see some concrete developments towards getting that done."

In the U.S., confirmed cases of coronavirus have climbed to more than 3.5 million. Officials are divided on whether to mandate the use of face coverings to try to limit the spread of the virus. Stocks have been buffeted this week in part by news of some states reimposing restrictions such as closing restaurants, bars and stores, signaling further economic hardship in those areas.

There are also signs that the jobs recovery may be slowing. Job openings in July are down from last month across the U.S., and Google searches for "file for unemployment" are creeping up.

Major U.S. banks this week said they were putting aside billions of dollars as provisions for losses on their lending operations, suggesting that they expect the environment to deteriorate further. Entertainment giant Netflix, which has been one of the biggest beneficiaries of lockdown measures world-wide, also shaded investors' optimism when it said Thursday that subscriber growth may slow in the rest of the year.

Despite these signals that there may be more problems ahead for the economy, the S&P 500 ended Thursday up almost 1% for the week, erasing almost all its loss for this year. The technology-heavy Nasdaq Composite has gained 17% so far in 2020, and notched an all-time high in recent days.

"Overall, the equity market is priced for beyond perfection in the outlook for the next 12-24 months," said James Athey, senior investment manager at Aberdeen Standard Investments. "The U.S. indexes, and a small number of incredibly impactful and incredibly large stocks, have been sucking in investors from across the spectrum."

Shares in Netflix fell about 6.5%. The streaming company said it expects less growth for the second half of 2020 after shelter-in-place requirements helped it add over 10 million subscribers in the second quarter.

Major U.S. companies continue to report earnings, offering a view on how their operations are coping with the disruption caused by the pandemic.

Shares in investment giant BlackRock rose 1.6% premarket after it beat profit expectations as investors leaned on its bond funds to make new bets in volatile markets roiled by the coronavirus pandemic.

Paints and industrial coatings maker PPG Industries rose about 4% premarket. The company beat expectations for profits when it reported earnings after market close Thursday, and said that it had benefited from an uptick in do-it-yourself home decorating.

Over in Europe, investors are likely to be watching closely for signs of agreement between leaders on a recovery fund for the region. European Union authorities are meeting in person on Friday for the first time in five months to discuss a contentious EUR1.8 trillion ($2 trillion) spending plan intended to lift the region out of the coronavirus crisis.

The Stoxx Europe 600 is poised to end a week of chopping trading up more than 1%. European stocks have posted more muted gains than U.S. equities, leaving the benchmark still down 11% this year.

"The European stock market seemed to start the week thinking there would be an agreement on a recovery fund," said Edward Park, deputy chief investment officer at Brooks Macdonald. "That was extremely optimistic. Many factors for getting it over the line are still up in the air, which make an agreement today or over the weekend very unlikely."

In bond markets, the yield on the 10-year U.S. Treasury ticked down to 0.602%, from 0.611% Thursday.

In commodities, Brent crude, the global oil benchmark, fell 0.6% to $43.12 a barrel.

Write to Anna Isaac at anna.isaac@wsj.com

(END) Dow Jones Newswires

July 17, 2020 09:46 ET (13:46 GMT)