The Last Week in Review:

The market has had a negative trend lately. Concerns over the outlook for the economy, earnings, inflation, and Fed policy have been the culprits. These fears seem overdone as the Q2 earnings reports are released and valuations have dropped significantly. This should leave room for the market to finally see some gains later this year.

The latest reports show economic growth is slowing, but not substantially. The key components of GDP are still growing and are likely to continue to do so. Business investment should stay strong. Business investment is only 8% of GDP, but it has been rising at double digit rates for several years. Corporate profits are at record levels. Business investment will continue to rise at a very solid pace and add almost 1% to real GDP growth. Government spending will stay in the plus column. It is up 2.4% over the past year. With Katrina spending and an election year, it's not likely to change. These facts don't suggest anything near a recession.

Economists now forecast that earnings will slow to a mid single digit rate by Q4. But even with 5% earnings growth, current valuations should provide an upside to the stock market, particularly as the interest rate cycle will have peaked. The fundamentals are much better than commonly realized. The fears over the economy, earnings, inflation, and the Fed are overdone.

Last week, the Dow rallied to end the week higher by 129 points, increasing its year-to- gain to 1.4%. The S&P 500 added 4 points for the week, cutting its loss for the year to 0.6%. The NASDAQ lost another 17 points, adding to its year-to-date loss, now at 8.4%. The Russell 2000 fell 9 points for the week giving the index a small annual loss of just 0.2% year-to-date.

The Week Ahead

Earnings reports will continue to pour in this week. On Monday, American Express (AXP) reports their numbers. Tuesday, AT&T (T), DuPont (DD) and McDonald's (MCD) announce earnings, along with Amazon.com (AMZN), QLogic (QLGC) and Sun Microsystems (SUNW). On Wednesday, Kimberly-Clark (KMB) will release their report. Thursday, Boston Scientific (BSX) and Exxon Mobil (XOM) announce numbers, followed by KLA-Tencor (KLAC) after the market closes. Chevron (CVX) ends the week reporting results on Friday. General Electric (GE) will hold their Growth and Margin Expansion meeting on Wednesday and Microsoft (MSFT) holds an analyst meeting on Thursday.

The economic calendar is somewhat busy this week with the July Consumer Confidence being released on Tuesday, along with June Existing Home Sales. Wednesday morning, Weekly Crude Inventories will be reported, followed by the release of the Fed's Beige Book. Thursday morning, June Durable Orders and the June New Home Sales will be reported. Friday will bring the most significant economic report, as Q2 Preliminary GDP will be announced. Economists expect a 3% increase, while the widely-watched Chain Deflator, which measures inflation, is expected to come in at 3.8% on an annualized basis. The Q2 Employment Cost Index will also be announced followed by the revised July Michigan Sentiment Index.

In Summary: Investors need to continue to focus on the remaining corporate earnings and watch for signs from the Fed on the end of the rising interest rate cycle.