Wall Street may have a tough time shaking off the negativity created by May's disappointing number.
NEW YORK (TheStreet) -- It's going to take more than a weekend for Wall Street to shake off the impact of May's poor jobs report.
The major U.S. equity indices were demolished on Friday after the Bureau of Labor Statistics said nonfarm payrolls rose by 69,000, less than half of expectations.
Coming against the backdrop of Europe's financial woes, stocks sold off indiscriminately with the Dow Jones Industrial Average going negative for the year, and the S&P 500 breaking below 1280 for the first time since mid-January. As of Friday's close at 1278, the index is now 10.1% below its intraday 2012 high of 1422 on April 2, dipping a toe into correction territory.
Fear ruled the day as the yield on the 10-year Treasury bond slipped below 1.5% for the first time ever and gold vaulted back above $1600 an ounce.
Doug Cote, chief market strategist at ING Investment Management, expects the jobs report to be a cloud over the market until weekly initial jobless claims come out on Thursday.
"If that initial claims all of a sudden looks good, then we'll get over it," he said. "The payroll report was a catalyst to bring this market down because there's a lot of fear out there but the underlying uncertainty lies with Europe."
That's not to discount how poor the employment data was on Friday. It wasn't just May either. Both April and March saw downward revisions in payroll additions to 77,000 from 115,000 and 143,000 to 154,000 respectively.
Cote noted there was a "preponderance of weak U.S. economic data" this week including the ADP jobs report, personal income, second-quarter GDP and consumer confidence and noted that "on top of what's going on in Europe, taken together, the jobs data Friday came in at a bad time."
When the closing bell sounded, 2012's stellar start was history. The Dow is now down 0.8% year-to-date. The S&P 500 is holding with a 1.6% gain, while the Nasdaq Composite still has some cushion, up 5.5% on the year.
One possible silver lining from the poor jobs report is that it could prompt the Federal Reserve to embark on another round of quantitative easing.
"The jobs report falls right into the Federal Reserve's mandate of employment, so it gives the Fed a reason to pump money back into the market," said Rick Fier, equity trading director at Conifer Securities.
Paul Ashworth, chief U.S. economist at Capital Economics, said the market could get some insight into where the central bank stands sooner than later.
"Given the marked slowdown in employment growth, Fed Chairman Ben Bernanke's congressional testimony on the economic outlook next Thursday is now going to be even more closely watched for any hint that QE3 is coming, possibly even at the June FOMC meeting," he wrote. "We still don't think it is the near certainty some commentators seem to believe. Nevertheless, it does now appear that the global slowdown, and events in Europe particularly, are beginning to have a more marked impact on the US economy. And given the uncertainty surrounding exactly how events in Europe will play out, we certainly wouldn't rule out a QE3 if conditions continue to deteriorate."
The headlines from Europe, of course, will continue to be closely watched as well. The next round of elections in Greece looms on June 17, and it's still not quite clear what plan Spain expects to implement to confront its financial difficulties.
"The market has to focus on Europe because earnings are over," said Fier of Conifer Securities. "Nothing good is going to come out of Europe. They keep dragging their feet and that's dragging their economy into a predicament."
Matt Swaim, managing director and portfolio manager at Advisory Research, believes European officials need to start providing concrete details about their path forward to bolster confidence within the financial markets that the eurozone can remain intact.
"I think it's inevitable that we'll focus on some policy decisions here -- the U.S., E.U. and Asia and how they plan to deal with slowdowns from financing issues and how that creates stability and a path forward," Swaim said. "We have seen Europe kind of dither through the issue and not put a long-term policy in place."
ING's Cote noted regarding Europe that, "What the global markets want to see is Europe getting its act in order and everyone marching in the same tune. That includes Greece. Greece has to march in line and do austerity."
On the economic front, the factory orders report is scheduled for Monday. March's factory orders fell 1.9%; Briefing.com anticipates that in April that number will fall 0.3%.
Weekly initial jobless claims arrive on Thursday and the current consensus is at 375,000, which would be a decline from 383,000 this past week. Also of note will be the Fed's Beige Book release on Wednesday.
In corporate news, Pep Boys(:PBY) is scheduled to report first-quarter earnings on Wednesday. Analysts, on average, anticipate earnings of 14 cents a share on revenue of $538.4 million.
The auto parts retailer was in the headlines this week following the termination of merger agreement with buyout firm Gores Group.
Also reporting quarterly results next week are Diamond Foods(:DMND) and Lululemon(:LULU).
On average, analysts anticipate that Diamond Foods to post earnings of 64 cents a share on revenue of $271.04 million.
This is the company's first earnings report since its internal audit committee found in February that Diamond Foods' financial statements for fiscal years 2010 and 2011 need to be restated.
Analysts expect Lululemon to deliver first-quarter earnings of 30 cents a share on revenue of $270.57 million.
With reporting season essentially over though, Feir of Conifer Securities expects larger macro issues and speculation about Europe's fate to weigh more heavily than they otherwise would.
"When earnings are coming out, then you have something to look at or have something to look forward to," Feir said. "When earnings are over, you run into a rumor-driven, European-driven market. With Greece in a quiet period before their election, there will be more rumors about who's winning the election."
As far as technical levels to watch, Feir said he is keeping a close eye on the S&P 500 and whether it reaches 1280 and 1250 -- 1280 being the low in October 2011 and 1250 being the bottom in June 2011.
"Technicals in this kind of market are difficult because it is so European focused," Fier said. "If any good news comes out, this market will go higher because it's so prepared to go lower. In Europe, all you need is a question mark to go to a period. To get a period out of it would be wonderful."
But in spite of all of this negative sentiment, Cote said that this market is oversold and he would be looking to buy.
"Despite the weak data this week, corporate profits are at an all-time record and on track to meet $105 a share at the end of the year," Cote said. "Compare that to 1999, $39 a share and market was at 1460 ... There are compelling reasons to be in the market."
--Written by Alexandra Zendrian in New York.
>To contact the writer of this article, click here: Alexandra Zendrian
>To submit a news tip, send an email to: firstname.lastname@example.org.
>To follow the writer on Twitter, go to Alexandra Zendrian.