updated 4/26/2009 4:08:21 PM ET 2009-04-26T20:08:21

The wait for news about the government's stress tests of big banks and a crush of earnings reports are likely to keep Wall Street on edge this week.

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Investors whose burst of optimism sent stocks higher Friday will see if their bets — which came in part on some stronger-than-expected earnings reports — were well-founded. Hundreds of companies will be reporting their first-quarter results and their outlooks for the coming months.

"Companies that are being challenged will continue to be challenged, but the market is looking past what happened last quarter and looking more ahead to what's going to happen later this year," said Jason Ronovech, portfolio manager for Paradigm Capital Management in Albany, N.Y.

Among the hundreds of companies due to report are big names including Aetna Inc., Exxon Mobil Corp., MasterCard Inc., MetLife Inc., Pfizer Inc., Reynolds American Inc., Starbucks Corp., Sun Microsystems Inc. and Visa Inc.

Little glimmers of hope last week — Ford Motor Co.'s loss wasn't as bad as analysts had forecast and Apple Inc.'s results surpassed expectations — allowed investors to set aside some worries about the economy. That helped feed Friday's rally that lifted the Dow Jones industrials nearly 120 points.

The rally helped the major indexes largely recover from heavy losses earlier in the week. The Dow lost 0.7 percent over the course of the week, falling 55.04 points to 8,076.29. The Standard & Poor's 500 index ended the week down 0.4 percent, slipping 3.37 points to 866.23.

But earnings season, normally a nervous time on the Street, is particularly difficult as investors try to get some sense from companies of when the recession will ease. And the reports that pleased the market last week might be sloughed off this week — analysts say there is a danger that traders could start to hit the "sell" button if they're no longer impressed by companies that beat meager expectations.

"Everyone is playing this guidance game right now where they are setting the bar low so they can meet the bar," said Tommy Williams, president of Williams Financial Advisors in Shreveport, La. "That can only last so long."

Meanwhile, the market is waiting for more information about the stress tests the government is giving the 19 largest U.S. banks. Regulators briefed bank officials Friday about the tests, which are designed to determine which banks may need further help from the government, and Federal Reserve officials told reporters that the banks will be required to keep extra capital reserves in case losses continue to climb. That means some banks will likely have to raise additional cash.

Results of the tests won't be announced until May 4, and investors are likely to be increasingly nervous about bank stocks in the meantime.

"There is going to be tremendous speculation and many people pulling out of the sector which could have a negative impact on the markets," said Joe Heider, president of Dawson Wealth Management in Cleveland.

There is also economic data this week, including the Fed's assessment of the economy that will accompany its decision on interest rates after a two-day meeting that ends Wednesday. The Fed is widely expected to hold interest rates steady. Its federal funds rates is already almost as low as it can go, set at a range of zero to 0.25 percent.

"The Fed has pretty much outlined their strategies. ... They must continue to play the pep rally role," Williams said.

Among other data, Standard & Poor's/Case-Shiller releases its February index of home prices on Tuesday, just before the Conference Board releases the Consumer Confidence Index for April.

The Commerce Department is expected to release its report on first-quarter gross domestic product on Wednesday. On Thursday, it will report personal income and spending for March.

Wall Street has been able to take negative economic numbers in stride lately, understanding that the recession will take time to work itself through. But, Williams said, "some things in the economic data will confirm that we have a long way to go. We are far from being out of the woods."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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