Worse-than-expected Economic Data Thwarts Rally

The rally's staying power will face more tests this week as retailers report May sales results Thursday and as the Labor Department releases jobs data Friday. The monthly jobs report is one of the most closely watched indicators of the economy's health.

Matt King, chief investment officer of Oakland, Calif.-based Bell Investment Advisors, said the market's dips are an opportunity for investors to increase their stock holdings.

"We're trying to caution people that just because the market pulls back doesn't mean we're heading back to the bottom," he said.

Still, analysts are keeping a close eye on rising Treasury yields and a weakening dollar. Investors are concerned those factors, largely an outcome of the government's massive stimulus efforts and the improved outlook on the economy, could also hinder a robust recovery.

Rising yields could lead to higher interest rates on mortgages and other types of consumer loans to which they are linked, while a falling dollar could trigger inflation and restrict the buying power of consumers.

On Wednesday, however, both Treasurys and the dollar rebounded.