Stocks were doing just fine for most of the week only to get clobbered by a dismal July jobs report released on Friday that sent shivers through a market providing evidence that the economy is not rebounding as quickly as hoped.

After falling 1.5%, the blue-chip Dow Jones Industrial Average ($INDU) pared most of its losses to close down 21.42 points at 10, 653.56. The Dow was up 1.6% for the week. The broader S&P 500 ($INX) dropped 4.17 points to 1,121.64 and the tech-heavy Nasdaq ($COMPX) fell 4.59 points to close at 2,288.47.

The core reason for the weakness in stocks: the July jobs report. The news was not good -- the U.S. lost 131,000 jobs for the month -- significantly worse than the drop of 60,000 jobs expected. In the private sector, 71,000 jobs were added, but the market had been expecting 100,000 new jobs. Unemployment remained at 9.5%.

Bad News After Good

If that wasn't enough, the government also revised downward its June numbers to show a drop in payrolls of 221,000, compared to the 125,000 decline that was reported a month ago.

The bad news came after a week of relatively good news -- enough to get investors to briefly stop thinking about a double dip recession and the prospects of deflation. Earnings season, which is now mostly over, has been generally upbeat with corporate profits better than expected. Stocks also got a boost during the week from rising retail sales numbers (July retail sales were up 2.9% year-over-year) and an uptick in consumer sentiment.

Of course, none of that provides clear direction for the market, but Treasurys rallied as investors flocked to safer-havens. The 10-years Treasury note's yield fell to 2.82% close to where it was in April 2009. The question now, is whether the Federal Reserve will take steps next week to use monetary policy to provide some support to the struggling economy.