The Last Week in Review:

The major concern for the stock market is the opinion that the economy is slowing much too fast. The housing data last week exacerbated this concern by reporting the highest inventory for unsold existing homes in 13 years. However, two economic releases this week may show that economic growth, in fact, remains reasonably strong. Currently, there is no evidence that a recession or anything close to it is developing.

Last week, the stock market retreated on news that new home sales and existing home sales were down significantly in July. Though the reaction was understandable, the concerns seemed to be a bit exaggerated. Housing is only a modest component of overall GDP. In terms of construction, it is only 6% of the economy. The greater concern is that a weak housing market will have a negative effect on consumer spending. There isn't as much evidence that there has been any such impact yet.

Last week the Dow lost 97 points, reducing its year-to-date gain to 6.2%, while the S&P 500 lost 7 points and is now up only 3.8% for the year. The NASDAQ continued to sag as it lost 24 points, increasing its loss year-to-date to 2.9%. The Russell 2000 gave up 12 points, reducing its year-to-date gains to 3.9%.

The Week Ahead

The stock market will probably remain sensitive to every economic release on fears of a sharper slowdown than what has developed so far. But with interest rates starting to leveling off, and no sign of a downturn in consumer spending or business investment yet, these short-term reactions to individual economic releases will often cause over-reactions in the market.

Trading this week is again expected to be light, with few earnings reports expected. Dollar General Corp. (DG), H. J. Heinz Company (HNZ), and retailer Tiffany & Co. (TIF) all report earnings Thursday. Also on Thursday, Starbucks (SBUX) will release their August revenues, which will be closely watched after disappointing July results. Russian mobile telecommunications provider, Vimpel-Communications (VIP), announce their results on Friday, when General Motors (GM) and Ford (F) report their monthly car sales results.

The economic calendar has some significant events scheduled this week. On Tuesday, August Consumer Confidence will be released. Also on Tuesday, investors will be watching for the release of the FOMC minutes from the August 8th meeting, looking for insight into the Fed's current view of inflation and interest rates. On Wednesday, both the preliminary Second Quarter GDP and Weekly Crude Oil Inventories are released. Thursday, July Personal Income and Spending, July Factory Orders and August Chicago PMI, are all released. On Friday, the August Employment Report, July Construction Spending, and the August ISM Index are reported. Fed Chairman Bernanke will speak at Clemson University on Thursday.

In summary, investors should focus on the Q2 GDP revision released on Wednesday numbers and watch for any further signs of inflation.