While there weren’t any fireworks per se last week, we finished off the holiday-shortened week with a bit of a thud, as lackluster jobs news capped the week. Volume was light for much of the week and markets were closed on Friday. For the week ended July 2:

Dow: Down 1.9% to 8280.74

S&P 500: Down 2.4% to 896.42

Nasdaq: Down 2.3% to 1796.52

The all-important jobs number brought the reality of the recession to the forefront. A greater-than-forecast 467,000 jobs were lost in June, bringing the U.S. unemployment rate to 9.5% from 9.4% in May. Though the market is a discounting machine, the data point fueled worries that recovery could be farther off than the market has baked in.

The jobs number highlighted the very real threat to the anemic positive trends we’ve seen in economic data that could cause a double dip down in the recession. For instance, last week, the ISM manufacturing index, a thermometer for manufacturing activity in the U.S., hinted that the sharp decline in U.S. manufacturing activity has slowed, and the S&P/Case-Shiller index, which measures home prices in 20 major cities, hinted that stabilization in home prices could be on the horizon. However, rising unemployment could suppress progress and cause a reversal in positive trends.

I’ve marveled at the market’s ability to stay positive in the face of lackluster news the past three months -- the way it looked at data as “less bad” than expectations for dire data. However, the jobs number seemed to all of a sudden bring back the logical trade: “sell off on the bad news.” As more economic data and quarterly earnings come out, we’ll see if this trend continues.

Companies in the news ...
General Mills (NYSE:GIS) reported better-than-expected earnings, as sales grew 5% and gross margins recovered. The company also forecast better-than-anticipated earnings for its current fiscal year, as it expects lower commodity prices and new product additions to boost results.

Constellation Brands (NYSE:STZ), the world’s largest wine marketer and distributor, posted an 85% drop in earnings for its fiscal first quarter, as sales fell and the company incurred restructuring costs on a divestiture of its value spirits business. Gross margins edged down, as consumers traded down for lower priced beer and wine. Organic net sales increased 1% in constant currency terms, and the company reaffirmed full-year guidance.

Enterprise software company Oracle (NASDAQ:ORCL) said it will cut up to 1,000 jobs in Europe, as conditions there remain challenging.

Pharmaceutical giant Johnson & Johnson (NYSE:JNJ) said it will acquire an 18.4% stake in Irish biotech company Elan Corp. for $1.5 billion, in an effort to penetrate the lucrative market for Alzheimer’s disease treatments.

The three biggest carmakers, Toyota (NYSE:TM), Ford (NYSE:F), and General Motors, said last week that they think U.S. auto sales have bottomed. New car sales posted the smallest decline for any month this year, though sales still slipped 28% year over year.

What’s ahead
Welcome to the third quarter!

Earnings season starts in earnest this week with Alcoa (NYSE:AA) on Wednesday. Goldman Sachs (NYSE:GS) kicks off the reporting season for banks on July 14. Wall Streeters, including JPMorgan (NYSE:JPM), Goldman Sachs, and Bank of America (NYSE:BAC), are expected to log the most lucrative quarter since the financial crisis began, as they returned to banking basics and competition thinned out.

Earnings will be a major catalyst for this market in the coming weeks. The past rally was driven by “less bad” economic data and corporate earnings. Expectations now are higher than before, and may be harder to beat as a result

On the economic data front, this week brings the ISM services index. Out today is the May consumer credit, the trade balance, and the Reuters/University of Michigan Sentiment index.

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Jennifer Schonberger owns shares of Oracle, Johnson & Johnson, and Bank of America, but does not own shares of any of the other companies mentioned in this article. Johnson & Johnson is a Motley Fool Income Investor selection. The Motley Fool has a disclosure policy.