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One of the hard things to figure out about the recent bludgeoning the stock market underwent is how it could have happened in the midst of such a strong earnings season.

Company after company, from

McDonald's

(MCD) - Get McDonald's Corporation Report

to

Apple

(AAPL) - Get Apple Inc. Report

to

Ingersoll Rand

(IR) - Get Ingersoll Rand Inc. Report

, has posted strong results. (

Microsoft's

(MSFT) - Get Microsoft Corporation Report

Thursday report is one of the few real disappointments.) More than half of the companies in the

S&P 500

have reported so far, and they've been beating analyst estimates by an average of 6.4%, according to

TheStreet Recommends

First Call/Thomson Financial

. Year-over-year earnings growth is tracking at 28%.

But that phenomenal growth doesn't come from nothing. The economy was frightfully hot in the first quarter -- many economists have upped their

gross domestic product forecasts to near the 7% level -- raising the possibility that the

Federal Reserve will hike rates aggressively. Since the strong March inflation report, there has been a lot of debate on the Street over the possibility that the Fed may raise its target

fed funds rate by 50 basis points at its May 16 meeting.

This makes the coming week an important one. Microsoft's miss may dominate the early part of the week, but Thursday brings first-quarter GDP, the first-quarter

Employment Cost Index -- the final word on wage inflation -- and a speech by Fed Chairman

Alan Greenspan. By the time that day is over, the debate on what the Fed's going to do next might be pretty much over.

Is Greenspan Behind the Curve?

"What it's going to come down to is whether or not the Fed chairman believes he's behind the curve or not," said Mary Dennis, senior economist at

Merrill Lynch Government Securities

.

If he does, he's going to have to let the markets know that the Fed may hike by a half point, and soon. The Fed does not like to disrupt markets, and never less than in the present case. Maybe the biggest reason not to go 50 basis points is that, with the fragile state of the market, stocks could turn sharply lower. This could, in turn, basically tie the Fed's hands, precluding it from tightening further.

Worse, it would send a message to investors that Uncle Al will always protect them in the end. If there's a reason for the Fed to stick to gradualism, said Dennis, that's it.

A red-hot economy and a big debate on how far the Fed is going to go is not very favorable for stocks, particularly after all the recent volatility.

"Going forward, I think we have a tough environment here over the next three to six months," said Allen Ashcroft, a money manager with

Allied Investment Advisors

. Interest rates aren't the only problem, says Ashcroft. Seasonally, it's just not a very good time for stocks, particularly tech names.

The Tech Trader's Worrisome Prayer

And tech has other problems, too. Many players were hurt badly in the selloff, and many may exit the market if they see stocks come up to where they bought them. It's the familiar prayer: "I will sell my stocks and be kind to animals and visit Aunt Millie and go to church, God, if you just make me whole again."

This creates a sort of natural resistance in the market, and may mean that it will be sometime before tech stocks reach their old highs again. In the meantime, other stocks may come to the fore, but it will be a seesaw effect, with money shifting back and forth between New Economy and Old Economy stocks.

"We're going to have some more chop," said Brian Conroy, head of listed trading at

J.P. Morgan

. "It will be a rotational chop rather than a macro-direction chop, out of tech and banks and into some of the defensive names. It's going to be a little bit of a tug of war."

Ashcroft, though he believes that the rotation will continue into some of the old economy, and though he reckons that some of the highflying Internet and biotech issues will never reach their old highs, says that tech's long-term prospects are good.

"I still think tech is going to be where you're going to get your long-term growth," he said. "The fundamentals of some of these companies couldn't be better. That's why I think we're going to get through this."

That doesn't mean there won't be some scary moments. With the coming week's big economic reports, one can easily imagine stocks dipping back toward the lows they hit during the selloff. If that happens, the important thing will be for the old lows to hold -- dip below them, and people start to worry.

Laszlo Birinyi, president of

Birinyi Associates

, thinks that it will not. While some technicians have said that

April 14's selloff didn't include the kind of fear they usually associate with a bottom in the market, he notes that toward the end of the day it looked very much like capitulative selling, with institutions in particular shedding holdings at a rapid pace. Technology looks good to him right now, as do financials and selected drug companies.

Whether those things will still look good after Thursday's big economic reports -- well, that's what the coming week is all about.