With the Iraq war mostly behind Wall Street, investors will get a reality check in the holiday-shortened week ahead when some of America's biggest companies such as IBM and Intel hand in quarterly scorecards.
The grades may not be that good. Investors are struggling to determine how much earnings were hurt by uncertainty over the Iraq war and how much profits will pick up once it ends.
"The market was sentiment-driven as we entered the war with Iraq. Now we're wrapping up the war's first phase and people focus on earnings and economic numbers," said Joe Kalinowski, chief investment officer at Ehrenkrantz King Nussbaum.
"It was unique that on the same day when Saddam Hussein's statues started to come down, the market briefly rose, then came off as profit warnings started to take centre stage."
The quarterly earnings season goes into high gear next week, with about 1,300 companies reporting results, and many have warned the numbers and the trends will disappoint.
On Friday, stocks eased as worries over the economy and earnings marred surprisingly strong readings on retail sales and consumer sentiment. The Dow Jones industrial average fell 17.92 points, or 0.22 per cent, to 8,203.41, while the broad Standard & Poor's 500 was down 3.28 points, or 0.38 per cent, to end at 868.30. The Nasdaq Composite slipped 6.76 points, or 0.50 per cent, to 1,358.85, based on the latest available figures.
For the week, the Dow fell 0.89 per cent, the Nasdaq slid 1.78 per cent and the S&P 500 lost 1.2 per cent.
"A lot of big names will be reporting and I don't think the tone will be very strong, so the market will be facing some risk," said Michael Kayes, chief investment officer of Eastover Capital Management, which oversees about $300 million.
"The economy has slowed in the first quarter with people glued to their TV screens watching the war and with the weather awful," Mr Kayes said. "So earnings will not be too strong."
Wall Street will keep an eye trained on economic reports that could shed more light on the status of the world's largest economy during a week shortened by the Good Friday holiday. Statistics are due on the US Consumer Price Index, which tracks retail-level inflation, plus housing starts, business inventories, industrial production and weekly jobless claims.
Still, that's all just an appetiser for the main event over the next two weeks: corporate earnings. Investors will tune in to what companies say about the quarter that just ended as well as watch their forecasts for the second quarter.
"It's all earnings. It's not even really so much the absolute numbers, which everybody pretty much has baked into their models," said John Gillette, a trader at Lazard Freres.
If no good guidance is forthcoming, "the market just does this - dull, wishy-washy, back and forth, no incentive."
Financial results are due from one-third of the 30 icons that make up the Dow, including the trio of computing behemoths: International Business Machines Corp., Intel Corp. and Microsoft Corp.
Among other household names set to report results: Kraft Foods, heavy equipment maker Caterpillar, soft drink giant Coca-Cola Co. and car maker Ford Motor Co.
Earnings growth for the companies in the Standard & Poor's 500 index is seen up just 7.4 per cent for the first quarter from a year ago, down from earlier estimates, Mr Kalinowski said.
"There has been significant deterioration in the (estimates) numbers because of all the negative pre-announcements we've been getting," he said, referring to profit warnings raining down on Wall Street in recent weeks.
For every positive pre-announcement, there have been three negative ones, he said, adding that the "last time it's been this severe was just after September 11."
On the war front, US and Kurdish forces completed their conquest of northern Iraq on Friday, taking Mosul without a fight. But it was anarchy in Baghdad and other cities.
That's why the Iraq situation still matters, said Donna van Vlack, director of trading at Brandywine Asset Management.
"There's been a lot of disruption. How do you do that? It takes time - the one thing that nobody's willing to give it," said Van Vlack, whose firm oversees $7 billion.
Before stocks resume regular trading today, the market will get a reading on US business inventories in February. Inventories are expected to rise 0.3 per cent after a 0.2 per cent gain in January, a Reuters poll of economists shows.
But industrial production numbers for March, due on Tuesday, are forecast to show a drop of 0.2 per cent, compared with a rise of 0.1 per cent in February.
Wednesday brings the release of the US Consumer Price Index for March. The forecast is for a 0.4 per cent gain in the overall CPI, which would reflect tamer inflation than in February when CPI jumped 0.6 per cent. Excluding volatile food and energy prices, the core CPI is expected to edge up 0.2 per cent in March from a 0.1 per cent gain in February.
March housing starts, also due Wednesday, are forecast at an annualised rate of 1.667 million units, up slightly from a pace of 1.622 million units in February.
On Thursday, the market will get some of the week's most crucial data with the weekly report on the the number of Americans filing for first-time unemployment benefits. The forecast is for 411,000 claims for the week ended April 12, up from 405,000 the previous week, and above the key level of 400,000 - an indicator of an extremely weak labor market.
"The most important factor in terms of the economic statistics is the jobs data," Eastover Capital's Mr Kayes said. "If we can stem the job losses, that would be good for the market. But I don't really foresee that."
The grim labour market picture sends a chill through Wall Street. The fear is that consumers will slash spending if they feel their jobs are threatened.