Poor earnings no help
Blue chip stocks did see some gains on Monday as investors considered the favorable impact of the Federal Reserve's rate cut the previous week. But poor earnings reports exerted downward pressure on stocks during the holiday-shortened week. Thin volumes had to have played a role in the sharp reaction to the employment report, which reduced hopes that an economic recovery - and a profit reversal - were on the horizon.

The Nasdaq composite index hit its local high on Friday of the prior week, despite the fact that a technical snafu reduced trading hours on the critical last day of the quarter when volumes tend to be higher. But this week saw losses in the Nasdaq as earnings warnings once again tumbled out from technology companies. The index was the biggest loser on the week, closely followed by the Russell 2000. Until Friday's employment report, the Russell was one of the few market indices that was actually higher on the year. The Russell now stands at its lowest level since April 26. The Dow and the S&P 500 are at their lowest levels since April 17. The Nasdaq's losses brought it back to levels seen three weeks ago.

Treasuries yields fall on employment report
Treasuries didn't really benefit from the Fed's 25 basis point rate cut at the end of June as economic reports came in stronger than expected. The first week of July saw some improved economic indicators as well, but thin trading in a holiday-shortened week still allowed Treasury yields to dip slightly from last Friday's close. On Friday, the Labor Department reported that the jobless rate ticked higher and nonfarm payrolls plunged. Even with upward revisions to April and May data, the quarterly drop in payrolls was the largest since 1991 when the U.S. was in recession. It may be too soon to predict another Fed rate cut - particularly before the next FOMC meeting on August 21 - but the employment report will likely set a negative economic tone for the month, inspiring thoughts of lower interest rates.