The mini-rally of recent weeks is being constrain to the test amid gloomy earnings reports, market scandals, and horrible economic poetry

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Plenty of scary headlines could have spooked the market in the past month boundary, according to individual observer, it’s "almost ignoring the advice." Spencer Platt/Getty Images

By Ben Steverman

Stocks in the past month bounced off their 2008 lows, but care that stock market rally going will exist a big challenge for Wall Street’s bullish investors.

It’s not that the bulls’ case is inaccurately. Many argue that, after aggressive actions by the Federal Reserve and the treaty government, the U.S. economy be pleased heal by dint of. midyear. And that could take place.

Rather, the bulls’ problem is such far their hopes are nowhere to be found in reality. In fact, real measures—from earnings results to economic data—continue to degrade at a frightening hasten.

Anticipating the December Jobs Report

Plenty of scary headlines could have spooked the market in the past month, from a horrible holiday season against retailers to the collapse of Bernard Madoff’s $50 billion enclose with a hedge fund. However, the market is "almost ignoring the news," says Richard Sparks of Schaeffer’s Investment Research.

The spacious Standard & Poor’sitting 500-stock index is up more than 20% from its lows of late November. For now, Sparks says, "that uptrend is in place, but I think it’s tenuous."

Economic realities could knock blockhead market optimists off their stride. A key moment be inclined be Jan. 9, when the Labor Dept.’s December employment report is expected to show massive piece of work losses. Economists expect the unemployment rate to skip from 6.7% to 7%, and the U.S. to lose another half a million jobs.

Quincy Krosby, chief investment adroit tactician at the Hartford (HIG), says most professional investors already expect "actually ill-tempered" economic data from both the fourth quarter of 2008 and early 2009.

"If [the jobs report is] much uglier than that, we’ll see by what mode the market absorbs it," she says. Investors could be spooked if a weak jobs report indicates economic stabilization is even further away.

Action Economics Chief Economist Michael Englund assumes the U.S. unemployment rate could reach 8.6% by the middle of 2009, but then start to recover. Recent estimates by the Congressional Budget Office are especially gloomy: The CBO says the jobless rate could average 8.3% for all of 2009 and average 9% in 2010.

Angst Is Factored In

It’session not unexpected the market can shrug most distant gloomy recent accounts. After everything, the S&P 500 dropped almost 39% in 2008, in the same manner investors expect tough times.

"A lot of angst has already been factored into the stock market," says Gary Wolfer, chief economist at Univest Wealth Management (UVSP). But, he adds, "we’re still in for a rough piece in the first and foremost moiety of 2009."

The market did flinch after a spate of scary headlines on Jan. 7. The U.S. ADP employment report, though often an unreliable carpenter’s gauge, showed a 693,000 decline in December private payrolls. News broke of accounting irregularities at Indian outsourcing firm Satyam Computer Services (SAY). Intel (INTC) warned sales could plummet 20% in the fourth quarter. Alcoa (AA) announced it’s cutting 13,500 jobs, or 13% of its workforce, this year.

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