Investors, worried they have gotten too optimistic too soon about a potential recovery this year, are likely to send stocks lower and cool the market's blazing three-month rally.

The earnings season heats up in earnest this week, with results expected from marquee technology companies like Intel Corp., IBM Corp. and Microsoft Corp., as well as a slew of banks and car companies.

Investors are hoping Corporate America will dish out some positive predictions for the months ahead, but earnings for the current quarter are expected to be the worst in a decade — down 22 percent — and that could put Wall Street in a blue mood.

"The market has anticipated a full recovery and then some," said Bernard Horn, president and portfolio manager at Polaris Capital Management. "At least at the companies I'm looking at, I'm not seeing that."

Economic data is expected to take a back seat to corporate results, but Wall Street experts will have their eyes trained on some of the key economic reports, including data on retail sales, consumer prices, industrial production, weekly jobless claims, and a closely watched gauge of consumer sentiment.

The Federal Reserve's "Beige Book" report, the central bank's anecdotal take on the U.S. economy, will also catch Wall Street's eye on Wednesday, when it is scheduled for release.

Fed Chairman Alan Greenspan gave the market a scare last week, however, after he said the recession-strapped U.S. economy, while stabilizing, still faces risks ahead, tempering hopes for a rapid economic rebound.

"That's the market's biggest fear — that Wall Street has been too optimistic and that a significant part of the recovery has already been priced into valuations," said Peter Coolidge, senior equity trader at Brean Murray & Co. "If you don't get the recovery ... that means the market might be ripe for some selling pressure."

Earnings Season Heats Up

About 80 companies in the S&P 500 are scheduled to release their corporate scorecards this week, making it one of the busiest weeks in the earnings reporting period.

"There will be tremendous earnings disappointments for the fourth quarter," said Milton Ezrati, senior economic strategist at Lord, Abbett & Co. "The market will tend to overlook them because it knows there is very little information in the fourth-quarter numbers, especially because it is so beset by write-offs.

"Having said that, the immediate effect of disappointing news is always negative," he added.

High-tech companies whose results will be on investors' radar screens this week include Apple Computer Inc., Compaq Computer Corp., software maker Sun Microsystems, Nortel Networks, Advanced Micro Devices, eBay Inc., and Yahoo! Inc.

Last Monday, No. 2 personal computer maker Compaq said it would post a profit for the fourth quarter, instead of the loss it had previously forecast, suggesting holiday sales were better than expected for the PC industry.

The increasing number of companies announcing that their earnings will beat Wall Street's estimates has given investors some hope that the worst of the profit squeeze is over.

Of the 1,347 companies that have offered insight into their results for the quarter thus far, 365 firms, or 27 percent, have said their earnings would beat estimates, while 389, or 29 percent, said they would be on target, and 593, or 44 percent, said their results would fall short, according to earnings tracking firm Thomson Financial/First Call.

At the same point in the confession period for the third quarter, out of 1,223 companies, 18 percent said they would beat estimates and 62 percent said they would miss.

All the same, Wall Street is expecting fourth-quarter earnings to show a decline unlike anything since the recession of 1990-1991. Analysts forecast a drop in earnings of 22.3 percent in the fourth quarter of 2002 — the worst since earnings fell 24.2 percent in the second quarter of 1991, Thomson Financial said.

A pick-up in earnings is not expected until the second quarter of this year, with analysts predicting a drop of 7.6 percent in the operating earnings of S&P 500 companies in the first quarter and a gain of 8.1 percent in the second.

Earnings reports are expected this week from a number of financial services firms, including J.P Morgan Chase, Citigroup, Wells Fargo, Bank One Corp., and FleetBoston.

The automobile industry will issue a hefty share of the week's key corporate scorecards, including results from Ford Motor Co., which recently announced 35,000 job cuts worldwide; General Motors, the world's largest automaker, and auto parts suppliers Delphi Automotive Systems Corp. and Visteon Corp.

Earnings reports are also expected from blue-chip diversified manufacturer United Technologies Corp., Bermuda-based Tyco International, a manufacturing and service company with dominance in undersea telecom cable, and No. 4 U.S. retailer Sears, Roebuck and Co.

Blazing Market Rebound to Cool

Investors' optimism has helped lift market gauges far off three-year lows hit in the wake of the Sept. 11 attacks on the United States. Since Sept. 21, the Dow Jones Industrial Average has gained 21 percent, the tech-packed Nasdaq Composite Index has climbed 42 percent, and the broad Standard & Poor's 500 index has advanced 19 percent.

Last week, the Dow fell 2.7 percent, the Nasdaq dropped 1.8 percent. The S&P fell 2.3 percent, breaking a three-week winning streak.

"Near-term, [the market] probably tests our courage. Longer-term, I think we're still oversold," said David Sowerby, market strategist at investment firm Loomis Sayles. "It's nothing more than a pit stop. I think the market's still getting a tire rotation."

U.S. December retail sales data, set for release on Tuesday, are expected to show a drop of 1.4 percent, after a 3.7 percent drop in November, according to economists in a Reuters survey. Excluding automobiles, economists forecast a 0.1 percent drop in December sales, versus a 0.5 percent decline in November.

Economists on average also expect the U.S. consumer price index (CPI), due out on Wednesday, to have remained flat overall in December, while it rose 0.1 percent excluding volatile food and energy prices, the poll showed.