NEW YORK (

TheStreet

) -- After a bumpy week of trading that ended with surprisingly positive news, investors next week will keep trying to gauge whether the economy at last has begun to regain its footing.

The Labor Department's

jobs report that buoyed the market on Friday sent the bears into hibernation. The report showed that employers cut fewer jobs last month than had been expected and that the unemployment rate declined slightly to 9.4%. Still, July ended with 247,000 more people out of work, and when counting the number of frustrated ex-workers who have simply stopped looking for a job -- and are not tallied in the official unemployment rate -- the percentage of Americans who are unemployed actually increased.

Of course, the jobs report was still a good sign that the economy is beginning to move toward recovery, but is not a panacea in and of itself.

"This report gives heart to those who believe the economy is trying to turn," said John Wilson, a strategist at Morgan Keegan, in a report Friday. "But it also sets us up for a disappointment if any future reports don't reinforce this morning's news."

Other positive economic signals came from an expansion of the "Cash For Clunkers" program, which stands to help struggling automakers like

General Motors

,

Ford

(F) - Get Report

and

Toyota

(TMC)

, as well as signs that

American International Group

(AIG) - Get Report

,

Fannie Mae

and

Freddie Mac

-- among

the most troubled companies in the country -- were moving forward on the path of reorganization to become independent again.

But those improvements are largely the work of the federal government, which is financing the auto program and owns about 80% of AIG, Fannie and Freddie, not to mention its nearly $80 billion in commitments to GM, GMAC and Chrysler. Furthermore, AIG on Friday reported that while it is back in the black its insurance operations are struggling, and Fannie Mae reported that its losses have ballooned. The mortgage finance giant required another $11 billion in support from the government, as the housing market continued to deteriorate.

"I think the recession probably ended in the third quarter," says Peter Cecchini, partner and co-portfolio manager of the hedge fund Seven Bridges Management. "But why did the recession end? Government stimulus programs that have supplanted private demand."

Cecchini is not alone in his belief that improvements are artificial, since they are not generated by the private market. But in a market that has rallied more than 40% since dreary lows in March despite no truly positive economic indicators, it's not really about how good things are, but how bad they're not.

"It's a fear of missing out rally -- a FOMO rally, we call it," says Justin Golden, an institutional sales trader at Macro Risk Advisors. "You've got a situation where a lot of investors were bearish or short, and the market has staged a pretty impressive rally here -- the

S&P

is up 15% in the past month. People feel like they have to get in the market now; chasing the market higher, if you will."

Whether the upswing continues depends largely on the shifting expectations of how bad things will be. Next week will have a big focus on the consumer, with a confidence report on Friday, preceded by a monthly retail sales report on Thursday. Some big retailers will also be releasing second-quarter results and providing commentary on the rest of 2009, including

Macy's

(M) - Get Report

,

Wal-Mart

(WMT) - Get Report

and

Abercrombie & Fitch

(ANF) - Get Report

.

While a Barclays report on Friday became one of the latest to announce an end to the recession, it also noted that "consumers are key" to the recovery going forward. But any improvements in consumer confidence are fragile, since the U.S. collectively lost trillions of dollars in wealth and millions of jobs during the crisis. The housing and job markets are far from recovered, and credit conditions remain constrained.

Cecchini says he will scrutinize those data and consumer credit figures released on Friday "quite carefully."

"Whether or not consumers feel better, whether or not they can actually spend is constrained by credit and their incomes," says Cecchini, who calls the consumer situation "still a very delicate one."

With consumer prices coming out next week, Cecchini said he will also be looking at the differential between those prices and producer prices as a metric for corporate earnings. Margins have improved in recent months, he said, helping to boost earnings, because companies' costs have decelerated more quickly than those for finished products.

Another event that stock investors may want to keep an eye on is a $75 billion auction of government securities, a record sum for T-bill offerings. Institutional investors will be watching closely to see whether there is still enough demand to support the huge amount of cash the federal government is pumping into the system.

But by and large, the sentiment has shifted from overwhelmingly bearish to largely bullish. Ethan Anderson, a senior portfolio manager at the financial services firm Rehmann, says he expects analysts to increase estimates for the second half of 2009 and perhaps 2010, given better-than-expected earnings so far this year, and the shift in sentiment.

Still, he warns, there could be some rough patches ahead.

"July being as great a month as what it was, the market doesn't go straight up," says Anderson. "It's wise to be prepared -- whether next week, next month, or whatnot, for a small pullback."

-- Written by Lauren Tara LaCapra in New York. Follow me on Twitter at www.twitter.com/TSCLauren

.