Stress test results, employment data and some major earnings reports may lead to a pause next week in a rally that has sent major stock market indices up dramatically as pressure in the bond markets has eased.

Investors have been buoyed by green shoots emerging from economic data, a positive edge to comments by

Federal Reserve

officials and mixed earnings reports showing that, overall, corporate profits were not quite as bad as some had expected.

Amid those relatively positive signs and indications that the worst of the financial crisis may have passed -- some banks posted record first-quarter profits -- the

Dow Jones Industrial Average

has sailed 25% higher and the broader

S&P 500

Index has gained over 30% since lows in early March.

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But the public unveiling of government "

stress tests," expected on Thursday, stands to send quakes through the market, if there are any surprises. Some characterize the test results as useless -- or, in

Wells Fargo

(WFC) - Get Report

Chairman

Richard Kovacevich's more brash characterization, "asinine" -- since banks routinely perform such tests internally, as do investors.

Furthermore, some say the conditions under which the most extreme stress test scenarios have been set are not harsh enough for a severe recession. Under a "baseline" scenario, the government tested balance sheets with a 2% decline in gross domestic product, and unemployment averaging 8.4% for 2009. The more severe conditions included a 3.3% GDP dip, with unemployment averaging 8.9%.

Many economists and observers have said they expect unemployment to sail above 10% by the end of the year, and the economy contracted 6.1% during the first quarter alone.

Still, the results will separate the wheat from the chaff in the banking sector. Financial companies are far from a full recovery, at least in some investors' minds, especially those who are following banking behemoths like

Bank of America

(BAC) - Get Report

,

Citigroup

(C) - Get Report

, Wells Fargo and

JPMorgan Chase

(JPM) - Get Report

, or smaller banks like

Fifth Third

(FITB) - Get Report

and

Regions Financial

(RF) - Get Report

, about which some analysts and investors have voiced concern.

Banks are relying heavily on government support through the TARP program, as well as initiatives in the housing market, economy, and debt markets. While it's still unclear exactly what the government will unveil, an "official" stamp of approval -- or failure -- will go a long way.

"The biggest thing going on next week will be the delayed release of the stress tests -- or partial release, whatever we get," says Ben Halliburton, founder and chief investment officer of Tradition Capital Management in Summit, N.J. "I think that's going to be the biggest driver to what transpires next week."

Halliburton is bearish on near-term prospects for the economy and the markets, believing the recent run-up will lead to a pause as economic reality sets in. He calls recent unemployment reports "very troubling," and notes that even if declines in output, housing, manufacturing and profits moderate, the economy is still weakening.

"In our view, the expectations for a fourth-quarter recovery for the economy and an uptick in corporate profits is far too optimistic," says Halliburton.

Next week's economic calendar includes construction spending and pending home sales reports on Monday, as well as the ADP employment report on Wednesday, followed by initial jobless claims on Thursday and the official nonfarm payroll and unemployment data on Friday. The market expects sharp drops in payrolls, and for the unemployment rate to increase to 8.9% from 8.5%.

A slew of earnings reports are also set to be released, with

Chesapeake Energy

(CHK) - Get Report

and

Tyson Foods

(TSN) - Get Report

on Monday;

Alcatel-Lucent

(ALU)

,

CVS Caremark

(CVS) - Get Report

,

Duke Energy

(DUK) - Get Report

,

Kraft Foods

(KFT)

,

Walt Disney

(DIS) - Get Report

and

Weyerhaeuser

(WY) - Get Report

on Tuesday;

Anadarko

(APC) - Get Report

,

Cisco

(CSCO) - Get Report

and

News Corp.

(NWS) - Get Report

on Wednesday; and

American International Group

(AIG) - Get Report

on Thursday.

Brenda Wenning, president of Wenning Investments in Newton, Mass., expects a pullback in the markets next week, though she believes most of the bad news has passed and "we're out of the woods for the near term." Even if the stress test results provide some bad news about bank balance sheets, she thinks few investors will be surprised that banks need more capital, especially given leaks this week about

Bank of America and

Citigroup.

Despite her bearish expectations for next week, Wenning will be watching for statements by Cisco Chairman and CEO John Chambers, who was one of the first to signal weakening demand and economic conditions during a third-quarter earnings call in the fall of 2007, at the market's height.

"Hopefully he'll have positive things to say," says Wenning.