By Nick Godt

Investors will get their first taste next week of what's expected to be a gruesome earnings season, with a double helping of sour 2009 outlooks and even more evidence of the depth of the recession.

"There's disappointment about the prospect of the recovery," said Ken Tower, market strategist at Quantitative Analysis Services. "Earnings are now more likely to disappoint, and across the board, [companies] are slashing estimates going forward."

Stocks fell on Friday, and posted steep losses for the week, after the government said the U.S. economy lost another 524,000 jobs in December, and the unemployment rate rose to 7.2%, confirming 2007 as the worst for the labor market since World War II.

The current market consensus is for the U.S. recession to bottom out sometime in the middle of this year -- but the latest signs from the labor market suggested to many that these forecasts might be too optimistic.

"I think that people are too optimistic about the recovery," Tower said. "A lot of bad news is already priced in but every time you get worse than expected news, the stock market will have to adjust."

On Friday, the Dow Jones Industrial Average (DJI) finished at 8,599.18, down 143.28 points, or 1.6%, for the session.

For the week, the blue-chip average posted a loss of 4.8%.

The S&P 500 (SPX) lost 19.38 points, or 2.1%, to finish at 890.35, with the broad index losing 4.5% for the week.

The Nasdaq Composite (RIXF) shed 45.42 points, or 2.8%, to stand at 1,571.59 Friday, leaving it down 3.7% from last Friday's close. .

President-elect Barack Obama told a news conference on Capitol Hill the jobs report underlined the need for quick action on his proposed economic stimulus proposal.

"The new Obama Administration has been very quick to market their roughly $750 billion two-year stimulus package in the hopes of speedy implementation after the January 20 inauguration," said Sherry Cooper, chief economist at BMO Capital Markets.

"Even so, it appears that the squabbling on Capitol Hill will stall early passage, at least for a while," she said.

Next week, investors will key in to more economic data, especially the December retail sales numbers due out on Wednesday, and the Federal Reserve's Beige Book of economic conditions, released on the same day.

According to Marc Pado, market strategist at Cantor Fitzgerald, the stocks in the retail sector bear watching as they have shown signs of life over the past week, even after most retailers posted scary same-store sales numbers.

Earnings

In the quarterly reporting season that gets its unofficial start Monday, analysts polled by FactSet anticipate earnings for S&P 500 companies fell 12%, dragged down by double-digit drops in auto, retail and materials companies.

Alcoa Inc. (AA), which kicks off the unofficial start of reporting season after the close of trading Monday, earlier this week said it planned to cut 13,500 jobs, close plants and chop capital spending by 50%.

Intel Corp.(INTC), another blue-chip stock often used as a barometer for both the tech sector and the economy, will report earnings on Thursday.

In just the past week, low-cost retailer Wal-Mart Stores, Inc. (WMT), luxury handbag maker Coach, Inc. (COH) and commercial printer RR Donnelly (RRD) have slashed their forecasts on the recently completed quarter.

Tuesday will bring results from S&P 500 component Linear Tech (LLTC), followed by Xilinx (XLNX) on Wednesday. On Thursday, Marshall & Ilsley (MI@), Genentech (DNA), Intel and Sealy (ZZ) will post results. On Friday, Johnson Controls (JCI) and PPG Industries (PPG) report results.

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