U.S. stocks could hit more speed bumps this week if the start of the third-quarter earnings season offers little evidence that the economic recovery is gaining strength.

With second-quarter earnings primarily boosted by cost-cutting, investors want to see if the latest quarterly results will show an improvement in revenues. That's a priority for investors because revenue growth is deemed a crucial indicator of consumer and corporate spending.

Aluminum company Alcoa Inc , a Dow component, is scheduled to post quarterly results on Wednesday after the market's close, marking the unofficial kickoff of the latest earnings parade.

The other marquee names on this week's brief earnings calendar are PepsiCo

, Yum Brands Inc , Costco Wholesale Corp and Monsanto Co .

Investors are clamoring for more solid signs of economic stability after the Standard & Poor's 500 <.SPX> has climbed 51.5 percent from a 12-year closing low on March 9.


By that score, the latest quarterly earnings are a high-stakes endeavor, with investors saying to Corporate America: Show us the money.

William Rutherford, president and chief investment officer of Rutherford Investment Management in Portland, Oregon, said that earnings have to be good enough to justify the run-up we've had.

We haven't got all the problems solved by any means, he added. We're still going to see bumps along the way.

Indeed, a string of surprisingly weak economic reports in recent days gave investors a cold reminder that the recovery will not be without hitches, even with the massive stimulus from the government.

On Friday, dour news came from the government's nonfarm payrolls report showing that U.S. employers shed far more jobs in September than expected. The jobs data put the stock market's bulls on the defensive. And this week could be just as daunting if there are few positive surprises.

The benchmark S&P 500 suffered its second straight weekly drop on Friday, and it is down 4.3 percent from its September 22 close, its highest finish since the current rally began.

The next big thing we're going to talk about is earnings, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio. Usually after the first couple of days, you get a feel as to what the overall trend is going to be.

Thomson Reuters data show that third-quarter earnings are forecast to drop 24.7 percent from a year earlier, a projection that gives companies a low hurdle to overcome following a surprisingly improved second quarter.


More takeover deals could also dictate this week's market action -- if there are any, according to analysts.

A flurry of takeovers over the last two weeks has dominated the headlines as companies jostle to bolster their revenue streams in an uncertain economy.

With many companies' growth challenged, we are seeing the tip of the iceberg in M&A, said Scott Billeaudeau, portfolio manager at Fifth Third Asset Management in Minneapolis.

Notable deals in the past week included Xerox Corp's planned purchase of Affiliated Computer Services Inc. .

On Thursday, Mexican brewer and bottler FEMSA said it was in talks with several companies about a possible deal involving its beer business.

This week's economic calendar is light. But on Monday, the spotlight will be on the Institute for Supply Management's September index of activity in the vast U.S. services sector.

According to a Reuters poll of economists, the ISM non-manufacturing index, or services index, is forecast to have rebounded to 50.0, the dividing line between contraction and growth, after hitting 48.4 in August.

Investors also will pay attention to monthly sales reports, due on Thursday, from major retailers to assess how consumers are faring as the job market remains weak.

Federal Reserve Chairman Ben Bernanke will be on center stage as he is scheduled to give a speech on the U.S. central bank's balance sheet before a Fed conference in Washington on Thursday. The next day, Fed Vice Chairman Donald Kohn will speak on monetary policy and the financial crisis at the same conference.

(Editing by Jan Paschal )