This may bring on new handwringing about the economy

May's weak jobs report raises the anxiety level in markets and may have sidelined some investors as they sort through what signals the economy is really sending.

The worst jobs report in more than five years may also have dashed some traders' hopes that stocks can break out to new highs in the near future. Focus could now swing to whether the market can hold its recent range, and every piece of economic data will be important. In the week ahead, there is a relatively light data calendar including productivity and costs Tuesday and the JOLTs report on job openings and turnover on Wednesday.

The big event of the week comes Monday when Fed Chair Janet Yellen speaks in Philadelphia on the economy at midday.

economy pedestrians after hours look ahead
Jon Jones | Reuters

Prior to Friday's report of just 38,000 nonfarm payrolls, the expectations had been for a slightly hawkish-sounding Yellen to guide markets toward a summer rate hike. But now economists are wondering whether Yellen will veer to the dovish side and repeat that the Fed's decision depends on the strength of the data while playing down her previous comment that the Fed could raise rates in the next couple of months.

"She can't help but express concern. She, of all people, will not dismiss this. She has also as recently as last Friday talked about ongoing labor slack," said David Ader, chief Treasury strategist at CRT Capital.

Economists had expected 164,000 nonfarm payrolls and had expected some weakness in the number because of the inclusion of 35,000 striking Verizon workers. But the number defied all expectations and was nearly 100,000 below the most pessimistic forecasts.

"It gives Yellen a much more difficult task Monday. People will be expecting her to walk back the tone that the Fed has put out in the last couple of weeks. In trying to do that, it's literally a tightrope act because if she doesn't walk the tone back enough people are going to be uncomfortable with the fact that they could hike at a rate quicker than what the market expects it to be," said Julian Emanuel, equity and derivatives strategist at UBS. "If you walk the tone back too much, it sounds like you're totally panicking."

Fed funds futures Friday priced out a rate hike for this year, and odds for a July hike moved closer to a 30 percent chance while June fell to single digits.

"There's no other data that's available that would suggest job growth has slowed, certainly to the degree this number would suggest. You can't dismiss it. It's an important report, but there are times when the data, for whatever reason, are not representative of the reality of what's going on," said Mark Zandi, chief economist at Moody's Analytics.

For the Fed to move on rates in the next couple of months, the economic data will now have to outperform. "People are going to be worried about the slowing pace of employment and about this data," said John Briggs, head of strategy at RBS. "It's not a good day for the economy. The market's now pricing [that] the burden of proof is going to be that they need strong data to convince them to go, just as coming into the [jobs] number, you needed weak data to convince them they weren't going to go, and now you've got that."

Stocks initially traded lower on the jobs report and yields fell sharply. Stocks, however, recovered much of their losses on the day Friday and were mixed on the week. The S&P 500 ended the week above the key 2,100 level, at 2,103, down six points Friday. The S&P was virtually unchanged on the week, while the Dow was off 0.4 percent for the week at 17,807.

Treasury yields moved lower across the curve after the jobs data Friday. The two-year was at 0.77 percent late in the day, as traders bet against a Fed rate hike. The bond market also drew buyers seeking safety, and the 10-year yield fell to 1.69 percent.

Although Fed officials have recently focused on June for the next rate hike, many economists believed the Fed would wait until at least July because of the June 23 U.K. vote on whether to remain in the European Union. If the voters choose to exit the EU, or Brexit, strategists expect the uncertainty to create market volatility.

"We are in a liquidity vacuum between now and June 23. Literally, I don't know any other way to say it. Trading volumes have been shrinking for weeks, and before this [U.K. vote] event that's very well-known and dwelled on for months and months. The uncertainty of [the May jobs] report gives investors even less incentive to trade. Having tested the upper end of the range, it's not likely we're going to break out of that range any time soon," said Emanuel. However, Emanuel still expects to see the markets make new highs in the second half of the year.

Scott Redler, partner with, said traders will now watch support levels to see if the market can stay in its range or break out.

"Instead of breaking out, we [will] probably fall back in the range a little. Next week, I'll be coming in to see if the S&P can hold above 2,088 for a session or so, and if it still can't pull back, then perhaps the market will make another attempt using the Brexit as a catalyst," he said.

Financial stocks were down 1.4 percent Friday, and utilities were up 1.7 percent, as traders reacted to the idea that the Fed would hold off on rate hikes.

"The market was set up for the next explosive move," he said. "You had strength in the banks. You had the biotechs bounce back for the last week and a half. … Technology was in the game. There were a lot of pieces of the puzzle for the S&P to make a move. … Then you had this horrendous report. No matter how you sugarcoat it, it was weak."

What to watch


2:15 a.m. Boston Fed President Eric Rosengren speaks in Helsinki

12:30 p.m. Fed Chair Janet Yellen on economy


8:30 a.m. Productivity and costs

1 p.m. $24 billion three-year note auction

3 p.m. Consumer credit

Read MoreDespite jobs bombshell, Fed could still hike rates in July


10 a.m. JOLTs

1 p.m. $20 billion 10-year note auction


8:30 a.m. Initial claims

10 a.m. Wholesale trade

1 p.m. $12 billion 30-year bond auction


10 a.m. Consumer sentiment

2 p.m. Federal budget