As the earnings reporting season for the first quarter kicks off this week, stock investors will be keenly assessing to what extent the slowing economy is taking a toll on Corporate America.
First-quarter U.S. earnings estimates have fallen sharply since the period began as expectations for a recession have grown. Standard & Poor's 500 companies are now expected to show an 8.1 percent decline in earnings, down from analysts' projections at the beginning of the quarter for a 4.7 percent gain in earnings, according to Reuters Estimates.
In the most recent signal of economic weakness, a report released on Friday showed an unexpectedly large drop in jobs in March, marking the third-straight month of contraction in the labor market.
"Even though the employment report was lousy, investors' minds were already wrapped in the fact that we're in the early stages of recession,'' said Fred Dickson, market strategist and director of retail research at D.A. Davidson & Co. in Lake Oswego, Oregon.
"The attention's turning towards earnings and everyone will be holding their breath because it's one more dark cloud for investors to deal with.''
Aluminum producer Alcoa, the first Dow component to report for the quarter, will release results after the closing bell on Monday; analysts expect earnings of 48 cents a share.
Conglomerate General Electric, another Dow component and a bellwether for the economy, caps off the week, delivering its earnings on Friday. (GE is the parent company of CNBC and CNBC.com.)
Despite the drop in jobs on Friday and Federal Reserve Chairman Ben Bernanke conceding for the first time on Wednesday that the economy could slip into recession, the market still managed to end the week on a high note.
The S&P 500 gained 4.2 percent, the Dow added 3.2 percent and the Nasdaq jumped 4.9 percent, its biggest weekly advance since August 2006. The bulk of the gains came on Tuesday, when Lehman Brothers put liquidity concerns to rest after it easily raised $4 billion in fresh funding.
"The important thing for the market right now is the raising of capital by some financial institutions. Even though write-offs may continue, the fear of collapses is less, so markets are reacting to that,'' said Subodh Kumar, chief investment strategist of Subodh Kumar & Associates in Toronto.
"If the equity markets are able to hold financials at an even keel, that would be seen as a positive ahead of earnings.''
Other notable companies set to announce quarterly results include No. 2 consumer electronics chain Circuit City Stores and home-goods retailer Bed Bath & Beyond, both on Wednesday. Drugstore chain Rite Aid announces results on Thursday.
Retailers will get particular attention on Thursday, when a slew of them, including Target , Kohl's and Gap, report monthly same-store sales.
Chain stores have struggled with declining customer traffic as consumers facing higher prices for gas and food cut back on nonessential items. Even the deepest discounters are feeling the impact. Family Dollar Storesreported a sharp drop in quarterly profit on Friday and cut its full-year earnings forecast, blaming deteriorating economic conditions.
"I'm skeptical about a recovery in consumer discretionary," Kumar said. "I think the consumer is in a phase of rebuilding savings."
Elsewhere on the economic agenda, the National Association of Realtors reports February pending home sales on Tuesday; the government reports the February trade balance on Thursday; and the preliminary April reading of the Reuters/University of Michigan Surveys of Consumers is set for release on Friday.
"Chain store sales will be the biggie, even more than home sales. People are going to be looking more at the consumer than the housing market," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois. "People want to look and see if the consumer is really pulling back. If they do slow their spending, that will have a lasting impact on the economy."
Investors will get a peek into the minds of Fed policy makers on Tuesday when minutes from the most recent interest rate-setting meeting are released U.S. short-term interest rate futures rose on Friday, following the payrolls report, as dealers raised bets that the Fed will make an aggressive rate cut when it meets at the end of this month.