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Jobs Indigestion, Earnings in Coming Week

Tickers in this article: AA CSX

NEW YORK ( TheStreet) -- Stock traders will play catch-up Monday as the market digests Friday's weaker-than-expected employment report.

Then all eyes will turn to first-quarter earnings season, which officially kicks off after the bell Tuesday with Alcoa's(AA) results.

On Friday, the government announced that nonfarm payrolls increased 120,000 in March , far short of the 200,000 gain that economists had been expecting.

The stock market was closed in observance of Good Friday. But in what could be a preview of Monday's action, stock futures slumped on the news.

At the CME, Dow Jones Industrial Average futures closed down 131 points, or 1%, at 12,847 after hitting a low of 12,837 following the weak jobs report.

S&P 500 futures closed at 1375, down 15 points or 1.1%, after sliding as low as 1372.50.

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Although the increase in March payrolls marked a significant decline from the 246,000 average for the preceding three months, some economists said it was likely a hiccup rather than a significant change in labor-market trends.

Paul Ashworth, chief U.S. economist at Capital Economics, said the modest March increase was "payback" for gains in January and February due to unseasonably warm weather.

"Admittedly, the payback is a little bigger than we had expected, but we don't think this is the start of another spring dip in labour market conditions as we saw in 2010 and 2011," Ashworth wrote in a research note. "Even factoring in the March disappointment, the three-month average gain is still 212,000 and we expect employment to continue rising at about that pace over the next few months."

Elsewhere, as earnings season gets underway, traders are bracing themselves for bursts of volatility springing from a macro vs. micro struggle.

Michael Gayed, chief investment strategist at Pension Partners, said "there could be a real tug of war between the bulls who are looking for better earnings on the company level, and the bears who are looking at a potential liquidity vacuum due to macro concerns."

Macro issues include renewed worries about Spain and Greece and the Federal Reserve's backing away from QE3, Gayed said.

Sam Stovall, chief equity strategist at Standard & Poor's Capital IQ, says that the markets might have "borrowed a bit too much from the future" and could be in the early stages of a widely anticipated pullback after the S&P 500 total return index reached an all-time high on April 2.

But the decline will be modest, Stovall predicts. Once the retreat is complete, the market may rise to fresh highs given the possibility of earnings surprises. In a recent client note said that first-quarter earnings expectations had been set quite low.

Independent analyst Brian Sozzi is among those approaching the new earnings season with a negative mindset after some below-consensus economic reports and negative forecasts from flash memory firm SanDisk(SNDK) and several gold miners.