Hip hip hooray! Oh, wait.

By Paul R. La Monica, editor at largeJanuary 12, 2010: 1:20 PM ET

NEW YORK (CNNMoney.com) -- It looks like those pesky corporate earnings reports may rain on Wall Street's parade.

Stocks have been rallying for months, largely on the hopes that the economy and corporate profits would bounce back sharply this year. But aluminum producer and Dow component Alcoa kicked off the fourth-quarter earnings period Monday with tinny results that disappointed investors.

Earnings were much worse than expected -- the company earned a penny per share but that was only after excluding a litany of charges that actually put Alcoa (AA, Fortune 500) in the red.

The stock nose-dived about 10% Tuesday afternoon, helping to drag down the Dow and the other major market barometers as well.

But here's the strange thing. Revenue actually beat estimates by a wide margin. Sure, sales were still down from a year earlier. But coming in at $5.4 billion in the quarter, revenue was only off 4% from the same period in 2008. Analysts had been predicting a 15% drop.

Considering that analysts and investors have been waiting for several quarters now for companies to finally show even faint signs of life on the top line, shouldn't Wall Street be cheering instead of panning Alcoa's results?

Nope. And here's why. All the enthusiasm about how much better the economy seemed to be getting at the end of last year has led to some unreasonably high expectations.

Many investors seemed to think that the economy was something that could simply be turned on like a light switch. But this light switch clearly has a dimmer.

Instead of an explosive rebound, we're likely to be mired in a prolonged slog of subpar economic growth. That should mean relatively anemic results awhile for companies such as Alcoa.

Making matters worse, rising oil prices appeared to take a bite out of Alcoa's profit as well. And somewhat ironically, the recent increase in crude prices is partly a side effect of the dollar's slide against other currencies -- which itself is a sign of investor exuberance about the global economy.

If that trend continues, other multinational giants could wind up suffering.

That may come as a surprise to some investors, since a sluggish greenback is often viewed as a plus for big companies because it inflates their foreign sales when translated back to dollars.

"What's curious is that investors take it that a weak dollar is always beneficial. But there has been damage from higher energy prices," said John Stoltzfus director and senior market strategist with Ticonderoga Securities, an institutional trading firm in New York "Sometimes, the weak dollar is problematic. Energy input costs could offset any sales gains."

Alcoa's not the only big company that's putting investors in a dour mood. Fellow Dow component Chevron (CVX, Fortune 500) warned Monday that profit margins in its refining business would be "sharply lower."

And homebuilder KB Home (KBH), despite reporting a fourth-quarter profit thanks to a favorable new tax law, said sales plunged 27%. That actually was a smaller decline than analysts predicted, but investors were put off by a lower-than-expected increase in new home orders.

Add that all up and it's not hard to understand why the market's down Tuesday. And that could set an ominous trend as more big companies prepare to release their latest results in the coming days and weeks.

"Investors have priced in a lot of good news, but the global economic recovery may be below trend," said David Joy, a money management firm based in Minneapolis. "There is a chance that earnings growth could surprise to the upside, but that's not our forecast."

Of course, investors shouldn't rush to declare the recovery is dead in the water because of Alcoa's results. After all, one reason Alcoa gets so much attention is merely because it is the first major company to report.

"The verdict is still out on this earnings season," said Quincy Krosby, market strategist with Prudential Financial. "Alcoa is always the star for 24 hours but the bulk of the big earnings reports will pick up over the next few weeks."

Stoltzfus agreed that it is too soon to definitively say if the bar for earnings expectations has really been set too high. But it sure does look that way.

So even companies that have better results than Alcoa could wind up making investors unhappy. Stoltzfus said that now, more than the previous few quarters, investors are demanding strong sales and earnings as well as decent guidance. The days of companies rallying on "less bad" news may be history at this stage of the rally.

"Quality counts, and the particulars of how a company is positioned will have a lot to do with how they perform" Stoltzfus said.

As such, Joy said that -- based on current stock prices and the likelihood of good, but not great, earnings this year -- he expects the S&P 500 to finish 2009 around 1,200. That's about 5% above current levels, a return that's in line with historical norms for stocks, but would probably seem a letdown to giddy investors who enjoyed last year's more than 25% pop.

A return to 1,200 for the S&P 500 would be a significant milestone though. The last time the S&P 500 stood above that level was back in September 2008 -- the month that brought us the implosions at Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and AIG (AIG, Fortune 500), the failure of Washington Mutual and, of course, the collapse of Lehman Brothers.

Crosby thinks that the S&P 500 may wind up getting back to a range of between 1,200 and 1,250 before the year is out. But at that point, the rally could stall. She said investors are still somewhat dubious of the rally and waiting for bad news.

That's what makes the market more than a bit scary right now. Investors are acting as if they think the worst is over, but there is still a nagging sense that another shoe has yet to drop.

"Embedded in investor thinking is that there has to be a pullback at some point. The market could go up to pre-Lehman levels, but then things would get more difficult," Krosby said.