NEW YORK (Fortune) -- Earnings season has barely begun but Wall Street doesn't seem to be in a forgiving mood. Forget simply meeting earnings expectations - that's enough to earn a beating from investors.

Add in rising tensions in the Middle East, fears of a slowing economy, and oil around $78 a barrel and you've got the recipe for a long, hot summer.

Thursday's loss on the Dow of 167 points may just be the beginning.

"The market is brutal," says Pequot Capital's Byron Wien, a longtime Wall Street sage. "If you beat estimates, you hold your own. If you meet, you go down and if you miss you get trashed. This confirms what I've talked about before - the second half of the year is going to be tougher."

So far, only 40 or so of the S&P 500 have announced results. General Electric on Friday posted an earnings gain in line with estimates, and gave a lukewarm forecast for the current quarter - shares sank a bit on the news.

Next week, a veritable who's who of the Dow and the S&P 500 reports, with Citigroup on Monday, Coke and IBM on Tuesday, Intel and Honeywell on Wednesday, and Pfizer and Microsoft on Thursday.

Earlier this week, Alcoa met Wall Street estimates with a 63 percent surge in earnings, but shares of the aluminum giant fell nearly 10 percent on disappointing sales.

3M, meanwhile, has been pummeled since warning a week ago that earnings would be weaker than expected.

Wall Street is expecting the typical S&P 500 company to post an earnings gain of 12.3% for the second quarter, followed by gains of roughly 15% in the third and fourth quarter.

Wien is skeptical: "It's hard for big companies like 3M to improve their margins," he says. "A lot of their products use petroleum-based raw materials, commodities prices are higher and there isn't much pricing power. There's a squeeze."

He predicts the S&P 500 will finish the year at about 1,200 - compared with 1,242 today.

While Smith Barney's Tobias Levkovich takes a much more positive view of the overall market - he predicts 1,400 for the S&P at year end - he does caution that earnings expectations may be aggressive in terms of smaller cap companies.

"We're definitely big cap oriented," he says. "Big caps are much more attractively valued."

Although the market seems to have become accommodated to higher interest rates, the spike in oil prices seems to have caught investors off-guard. So has the fighting between Israel and militants in Lebanon. Figure in the continuing tensions over Iran's nuclear ambitions and it's unlikely that oil prices will come down soon.

Not only does that add inflationary pressures to the U.S. economy, it's also likely to put a damper on results of consumer-sensitive names like Wal-Mart.

Adding to the pessimism is word of layoffs in the United States - just on Thursday Intel announced it would cut 1,000 management jobs, while Tyson Foods said it would trim more than 400 positions.

Markets across Europe lost 1% to 2% on Thursday, but they're likely to see further losses Friday, following Wall Street's plunge Thursday and the violence in the Middle East.

Only France has reason to celebrate - it's Bastille Day, and the Paris Bourse is closed.

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