Last week was a historic one for finance. Despite the swine flu, Chrysler's bankruptcy filing, early stress test results indicating that Bank of America (NYSE:BAC) and Citigroup (NYSE:C) will need more capital, and official word that we're in the worst recession since World War II, the Dow ended a huge April , gaining more than 7%.

For the week, the Dow was up 1.7% -- and in today's action, it's added to those gains.

GDP surprises to the downside
Last Wednesday brought the awful first-quarter GDP number. The U.S. economy contracted 6.1% in the quarter, worse than the expected decline of 4.7%, as businesses reduced spending and cut production to bring inventories in line with diminished demand.  

There was some good news buried in the bad -- namely, a pickup in consumer spending during the first quarter and the hope that inventories have finally come in line with demand.

Still, risks remain; namely the unemployment factor and credit markets. With unemployment expected to continue rising and remain elevated into the fourth quarter, there will be a limit on how much consumers will spend. This will contribute to tepid demand for credit from both businesses and consumers and continued tightening by banks. Unemployment numbers are due out Friday and will be a major metric to watch.

Chrysler files for bankruptcy protection
After a long battle with the United Auto Workers and creditors, Chrysler, the third-largest automaker in the U.S., filed for Chapter 11 bankruptcy reorganization. The Obama administration says it will take 30 to 60 days before the carmaker emerges from bankruptcy. However, some think that is too optimistic, given the arguments likely to come from Chrysler's creditors and dealers. While painful, bankruptcy will enable Chrysler to cleanse itself of its excessive debt and create a more viable business structure that enables it to better compete.

Earnings rolled out in full force
Meanwhile, this past week brought a blitz of earnings. Here were some heavy hitters:

  • ExxonMobil (NYSE:XOM) posted a worse-than-expected 58% decline in earnings, as lower oil prices hurt the oil king.
  • Colgate-Palmolive (NYSE:CL) and Procter & Gamble (NYSE:PG) reported lower-than-expected sales, as consumers continue to watch their spending. Consumers are choosing to substitute generic, less-expensive versions of basic household essentials instead of premium brands like P&G. Both companies were able to buoy quarterly profits with price increases.
  • Starbucks (NASDAQ:SBUX) saw its bottom line plunge 77% as the coffee giant incurred restructuring charges related to shutting down U.S. stores.
  • Time Warner (NYSE:TWX) said first-quarter profit fell 14% and noted its inclination to spin off portions of AOL.
  • Dow Chemical (NYSE:DOW) posted surprise profits thanks to cost-cutting, and it's considering selling its agricultural unit. The chemical behemoth also noted that signs are emerging that the severity of the recession is abating.

Companies have managed to post results on par with or above expectations, thanks to major cost-cutting and lowered analyst estimates.

My two cents
The market has been viewing data through rose-colored glasses of late. We've seen the market rally off of seemingly "bad news," a very positive sign that it's able to absorb negative data points.

The stress tests this week could change this, by reminding the market that the financial and banking systems are still fragile. That said, I would not dip into financials ahead of the release of the stress tests on Thursday.

Broadly speaking, be cautious when committing new capital. As Warren Buffett has said, there are no "called strikes" in investing, so wait for your target valuation to put new money to work.

Lastly, will the old adage "sell in May and go away" this year? Given the uncertainty surrounding markets, I won't venture a guess. I will say, though, that a better mantra might be "Expect the unexpected" -- something we've been living by since last year. For this May, that seems appropriate.

For this week (beginning May 4), keep an eye on these market catalysts:

Today:

  • Construction spending for March was expected to contract 1.4%, but gained by 0.3%.
  • Earnings reports: Sprint Nextel (NYSE:S), Tyson Foods (NYSE:TSN)

Tuesday:

  • The Institute for Supply Management Services Non-Manufacturing index is out, and economists are expecting an uptick to 42 from 40.8. Anything above 50 signifies expansion.
  • Earnings reports: Archer-Daniels-Midland (NYSE:ADM), CVS Caremark (NYSE:CVS), UBS (NYSE:UBS), Disney (NYSE:DIS), Kraft (NYSE:KFT)

Wednesday:

  • Earnings reports: Cisco (NASDAQ:CSCO), Garmin (NASDAQ:GRMN), Blackstone (NYSE:BX), Agrium (NYSE:AGU)

Thursday:

  • The release of the government's official stress test results for 19 of the nation's banks has been moved to May 7. We'll find out which businesses need more capital, in the government's opinion.
  • Productivity for the first quarter is expected to increase 0.9%, compared to a decline of 0.4% last quarter.
  • Earnings reports: CBS (NYSE:CBS), American International Group (NYSE:AIG), Wendy's/Arby's Group (NYSE:WEN)

Friday:

  • The unemployment number comes out Friday and economists are expecting job losses of 620,000 in the month of April, with the unemployment rate ticking up to 8.9%. That would be up from the current rate of 8.5%.
  • Earnings report: Toyota (NYSE:TM)

Related Foolishness:

Fool contributor Jennifer Schonberger owns shares of Bank of America, CVS Caremark, and Disney, but does not own any of the other companies mentioned in this article. Ready for the Fool's disclosure? Here we go: Kraft and P&G are Income Investor recommendations. Disney and Starbucks are both Stock Advisor and Inside Value selections. Sprint is also an Inside Value selection. Garmin is a Global Gains pick. The Fool owns shares of Starbucks and P&G -- and we tell you all this because of our disclosure policy.