So far, of the 131 companies that have already reported, more than 25 percent have missed Wall Street's profit targets.
That is more than twice the level of earnings misses at the same time last year, according to Reuters Estimates.
"Obviously, there is a fairly heavy earnings calendar next week and continued earnings misses will certainly make analysts take down their earnings estimates for the next quarter." said Tim Biggam, lead option strategist at online brokerage thinkorswim.com, in Chicago.
A Very Gloomy Caterpillar
Among some of the more troublesome warnings from Corporate America last week was the comment from Caterpillar's chief financial officer that there is a 50 percent chance the United States will fall into a recession in 2008 and pessimistic remarks from diversified manufacturer 3M on Friday
that showed housing woes have spilled into the industrial sectors.
Caterpillar's earnings, plus a much wider-than-expected earnings miss by Bank of America , cast a pall on Wall Street and sent the Dow Jones industrial average down 2.64 percent on Friday, while the Standard & Poor's 500 Index slid 2.56 percent and the Nasdaq Composite Index lost 2.65 percent. Still, the Dow is only about 676 points off its record high set on Oct. 11.
On Friday, the interest-rate futures market indicated the chance of a Halloween rate cut from the Fed was 98 percent -- up from only 32 percent a week ago. The Federal Reserve's next policy-making meeting is set for Oct. 30-31. The announcement of the Fed's decision is expected on the 31st, which is, of course, Halloween.
For the past week, the Dow fell 4.1 percent, the S&P 500 slipped 3.9 percent and the Nasdaq lost 2.9 percent.
Still, for the year to date, the three major U.S. stock indexes are still in positive territory: The Dow is up 8.5 percent, the S&P 500 is up 5.8 percent, and the Nasdaq is 12.8 percent higher.
"The next week or two are critical, they're going to set the tone for the fourth quarter and the beginning of 2008," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading, in Boston.
"If all the talk about recession, a slowdown in consumer spending, continued weakness in housing, soft labor market, if all that is true, you can't continue to trade at or around these all-time highs," Strazzullo said.
Among the Dow mega-caps set to reveal their quarterly results this week are credit-card issuer American Express and drug maker Merck on Monday, AT&T and chemical maker DuPont on Tuesday, jet manufacturer Boeing on Wednesday, and Microsoft on Thursday.
Technology bellwether Apple will release its earnings report on Monday. The tech sector has been largely immune to the profit woes that have hurt groups such as the industrials and financials since its fortunes are not tied to the housing market.
"Technology has been doing quite well," said John Praveen, chief investment strategist at Prudential International Investments Advisers, in Newark, New Jersey. "Look at the relative performance of Nasdaq."
Since the end of June, the Nasdaq has risen 4.68 percent -- or 5-1/2 times the gain in the Dow, which has added 0.85 percent -- and sharply outperforming the S&P 500, which has dipped 0.18 percent.
Countrywide Skeleton Watch
Sector-wise, energy and technology are the leaders for that period, while financials and consumer discretionary, which includes home builders, are at the back of the pack.
Those groups could fall further behind if Countrywide Financial , the country's largest mortgage lender, lets any more skeletons out of the closet when it releases quarterly results on Friday. Last week Countrywide said September mortgage lending fell 44.3 percent and delinquencies rose to 5.85 percent. Countrywide's shares are down 63 percent this year.
Other beleaguered companies set to report are home builders Centex on Tuesday and Pulte Homes on Wednesday. Both are expected to report a loss.
The housing sector will get even more scrutiny as existing and new home sales figures are scheduled for release on Wednesday and Thursday, respectively.
"Data on the housing front has been showing that things are getting worse," Praveen said. "The market will be looking at whether it is deteriorating further or bottoming here."
What's Scary? $100 Oil
Commodities will be closely watched after Dow component Honeywell International , another wide-ranging industrial conglomerate, said higher raw material prices are starting to take a toll.
Oil reached a record of $90.07 on Friday as a weakened U.S. currency made crude, which is priced in dollars, more attractive to overseas investors. Tensions between Turkey and Kurdish rebels in northern Iraq were also propping up the price of crude.
People are "already talking about $100 a barrel. It's not 'if' but 'when.' There will be a very, very negative reaction in equities if we see that," Praveen said.
"One hundred dollars means that current oil prices are where they were in 1972 in inflation-adjusted terms. That's when the fears of a U.S. recession will come to the forefront."