NEW YORK (CNN/Money) -
U.S. stocks closed lower Thursday, a shortened trading day, following weak reports on the labor market, but managed to close up fractionally higher for the week.
The market closed at 1 p.m. ET and will remain closed Friday due to the Fourth of July holiday.
Next week brings the start of the quarterly earnings-reporting period, in which a variety of corporations will let investors know how they did in the second quarter, and those results will likely dictate the direction of trade.
"Next week is big. It's a big earnings week, and it's a big 'show-me' week," said Brian Finnerty, managing director at Melhado, Flynn & Associates.
Stocks have rallied for nearly four months on the belief that a sustained economic and corporate profits recovery is en route for the second half, despite only limited evidence to support such hopes. Due to the optimism, investors have largely been able to shrug off any negative news that would seem to contradict recovery hopes. Even Thursday's selling seemed to reflect that, analysts said, as it could have been a lot steeper considering the unemployment news.
But next week will bring new challenges to that optimism.
There are no market moving earnings reports due Monday, but Tuesday brings the first Dow component, Alcoa (AA: down $0.23 to $25.30, Research, Estimates). The aluminum maker is forecast to have earned 24 cents in the quarter, down 11 percent from a year earlier.
Genentech (DNA: down $0.37 to $73.15, Research, Estimates) and Yahoo! (YHOO: up $0.50 to $34.85, Research, Estimates) results are due Wednesday, PepsiCo (PEP: down $0.43 to $44.03, Research, Estimates) Thursday and Dow stock General Electric (GE: down $0.06 to $28.55, Research, Estimates) on Friday.
"I think the earnings will be good but not great, and the market will react accordingly," Finnerty added. "Some people argue that stocks may have already priced in that the numbers will be fine, but I think you're going to continue to see stocks rising. The S&P 500 potentially has room to add another 6 to 7 percent in the near term."
No key economic data are due Monday, but reports on wholesale inventories and the trade balance for May, and import and export prices as well as producer prices for June, are all due later in the week.
The Dow Jones industrial average (down 72.63 to 9070.21, Charts) and the Standard & Poor's 500 (down 8.05 to 985.70, Charts) index both fell around 0.8 percent, while the Nasdaq composite (down 15.27 to 1663.46, Charts) fell 0.9 percent.
Market breadth was negative, and trading was thin, due to the holiday. On the New York Stock Exchange, three stocks retreated for every two that advanced on volume of 738 million shares. On the Nasdaq, where 952 million shares changed hands, decliners outnumbered advancers by nearly four to three.
Despite the sluggish day, stocks managed to close higher for the week, after falling last week. The Dow added 0.9 percent, the S&P 500 added just under 1 percent and the Nasdaq added 2.3 percent.
Before the market opened, the government issued reports showing that the unemployment rate in June rose to a new 9-year high, and that weekly jobless claims continued to rise last week.
The reports sent stocks reeling at the open. With the exception of an early morning attempt at a recovery following the strong ISM services report, stocks never really managed to regain momentum throughout the session and closed lower.
The unemployment rate rose to 6.4 percent in June from 6.1 percent in May, the Labor Department reported. The number came in above the 6.2 percent figure economists surveyed by Reuters were forecasting. Employers cut 30,000 jobs from their payrolls last month after cutting a revised 70,000 jobs the previous month. Economists were expecting no change in payrolls.
In addition, the number of Americans filing new claims for unemployment last week grew to 430,000 from a revised 409,000 the week before. This number also exceeded estimates. A number above 400,000 is generally seen as a sign of a deteriorating labor market. The weekly jobless claims tally has not dipped below 400,000 since mid-February.
The Institute for Supply Management's June index on the services sector of the economy showed a rise to 60.6 in June from 54.5 in May, better than expected. The report was a positive, but insufficient to cancel out the impact of the labor data.
A strong rally Thursday also added to the selloff, with investors engaging in an unsurprising bout of consolidation.
Selling was also exacerbated by reports around 11:00 a.m. ET that a major brokerage house incorrectly placed a large sell order instead of a buy.
Big cap techs slide
On the Dow, 28 out of 30 issues fell. While on the Nasdaq, big-cap technology issues like Intel (INTC: down $0.48 to $21.73, Research, Estimates) and Cisco Systems (CSCO: down $0.36 to $17.50, Research, Estimates) dominated the trade, losing 2 percent each.
In corporate news, two business software makers issued second-quarter earnings warnings, but yielded differing responses from investors.
Shares of Siebel Systems (SEBL: up $0.26 to $9.72, Research, Estimates) added 2.7 percent after it warned that results will miss current expectations, due to order delays caused by the weak economy. Documentum (DCTM: down $4.06 to $15.69, Research, Estimates) shares fell 20.5 percent after the company warned that its results will miss estimates, due to delays in government spending and weakness in its Asian markets. The stock was also downgraded to "neutral" from "overweight" by J.P. Morgan.
On the upside, Nasdaq share dealer Knight Trading Group (NITE: up $1.83 to $8.50, Research, Estimates) said that second-quarter earnings will far surpass analysts' estimates, due to the strong market and its expense management. Shares surged 27.4 percent.
Treasury prices fell sharply, with the 10-year note losing 30/32 of a point in price, pushing its yield up to 3.65 percent. The dollar was slightly higher versus the yen and euro.
NYMEX light sweet crude oil futures rose 23 cents to $30.42 a barrel. COMEX gold fell 50 cents to $351.30 an ounce.