Mixed data showing an economy that might need another rate increase in August sent the market lower this week:

Dow -0.5%

Nasdaq -1.9%

S&P 500 -0.4%

S&P Midcap 400 -1.6%

S&P Smallcap 600 -1.6%

The recent rotation from smallcap and midcap companies to large cap is still evident. In this down week, the Dow lost just 1/3 of what the smallcap and midcap indices gave back.

Monday kicked off a cheerful start to the new quarter. The ISM index fell to 53.8, below the expected 55 and June's 54.4. Construction spending slipped 0.4%, below the expected 0.2% gain and April's 0.2% fall. The reports were received as good news because they support the idea that the Fed might be able to pause interest rate increases in August.

The pre-holiday shortened session ended with the Dow up 0.7% and the Nasdaq up 0.8%.

The market was closed on Tuesday for Independence Day.

On Wednesday, an information services company named Automatic Data Processing surprised Wall Street with its own employment report derived from payroll data that it tracks. The report predicted a private payroll increase of 368,000. That's the highest increase since the firm began tracking in January 2001. This was ahead of Friday's official report from the Labor Department, and forced everybody to take out their pencils and recalculate what a strong labor market means to the economy. The consensus for Friday's official report had been an increase of just 160,000. If the ADP report proved true, then the Fed might not be able to pause rate increases in August.

Then, oil prices shot to a record high of $75.40 per barrel after industry investor T. Boone Pickens predicted that we'll see $80 oil before the end of the year. On top of that, the ever-nutty North Korea launched some long-range missiles.

It was a day of downers, and the Dow fell 0.7% while the Nasdaq fell 1.7%.

Thursday was a little better. More economic data from ISM showed a slowing economy, which boded well for an end to rate increases. The services index finally dropped below the 60% growth it's seen for the past four months to 57%. The employment portion dropped and the prices paid portion dropped.

That coupled with the Florida Supreme Court's rejection of the $145 billion verdict against tobacco companies sent the Dow 0.7% higher. Dow component Altria (MO) gained 6% on the ruling. The Nasdaq tacked on a tiny 0.1%.

Retail sales came in weak on Thursday. For June, they rose just 2.6%, at the low end of the 2.5% to 3.0% range projected by the International Council of Shopping Centers. More importantly, it was considerably lower than the average 3.8% monthly gain from January to May. This, too, seemed to be good news regarding the Fed's ability to pause in August. June is the second-most important retail month of the year as inventory switches from summer to fall and “back to school” merchandise.

Friday, however, brought a different read on the economic data. You'll recall that after ADP's payroll report on Wednesday, investors were tuned-in to Friday's official report from the Labor Department. Would ADP's prediction of a much higher increase prove true? No, it would not. The Labor Department reported a mere 121,000 increase, below expectations and just fine with the Fed's soft landing scenario. Maybe in future months, investors will pay less heed to ADP’s report.

Unfortunately, somebody highlighted the hourly earnings measure. It showed a surprisingly strong 0.5% gain. That's year-over-year growth of 3.9%, the biggest in five years. Perhaps, the thinking went, the Fed will not be able to pause after all.

Earnings season kicks off on Monday. Ahead of that, warnings from 3M (MMM) and Advanced Micro Devices (AMD) set the market on edge. At the closing bell, the Dow and the Nasdaq were both down 1.2%.

What should we expect from earnings season? Another round of solid double-digit growth, if estimates are any guide. Most analysts expect the S&P 500 to top 12% overall. There's a bad mood hovering around that, however. The second quarter's solid performance will not surprise many, and it might be the last strong quarter for a while.

This week's wage report notwithstanding, the economy is slowing down. Consumers are spending less. Stores are selling less. This is seen as good news for staying the Fed's hand, but when it comes to earnings it's not so hot. We'll probably be seeing a return to single-digit earnings later in the year.

When companies report in the weeks ahead, they'll show how they did last quarter and how they see business shaping up in the future. It will be attention to the latter that drives the market for the rest of this month.

I suggest making a shopping list now. We're bound to see lower prices before the market turns up later in the year. Establishing reasonable buy price targets ahead of time will help you to make clear decisions later.

Earnings begin on Monday with Alcoa (AA). General Electric (GE) reports on Friday. The following week brings reports from Citigroup (C), Coca-Cola (KO), Microsoft (MSFT), and Johnson & Johnson (JNJ).

Jason Kelly’s column appears every Saturday. He also writes The Kelly Letter every week with specific buy and sell guidance. For more information, please visit http://www.jasonkelly.com/letter.html.