The Last Week in Review:

The stock market is driven by two basic factors, earnings and interest rates. The steady rally in the S&P 500 over the past two and one-half months reflects this. A shift in interest rate expectations followed Fed Chairman Bernanke's testimony on July 19 and led market analysts to conclude that the Fed may be done raising interest rates. The 10-year note yield in July was 5.05%. It has dropped to 4.60% today. The reason that the interest rate outlook has improved is the recent data showing that economic growth is slowing. Yet, earnings expectations have held up very well. Q2 operating earnings for the S&P 500 are up 13%. Forecasts for Q3 have barely been revised even as the economy has softened. Q3 profits are expected to be up 14% over the same quarter last year. The fears about a severe economic slowdown or a housing crash simply have not yet had a broad impact on earnings expectations.

Currently trends are for strong earnings growth and a favorable interest rate environment. With stocks now trading at reasonable valuations, investors can expect a continued moderately bullish outlook for the stock market.

Last week, the Dow advanced to a new all time record high by rallying 171 points and increasing its year-to-date gain to 10.6%. The S&P 500 finished the week up 13 points, increasing its year-to-date return to 8.1%. The NASDAQ was up 41 points for the week, increasing its year-to-date gain to 4.3%. The Russell 2000 rose 14 points and is now up 9.9% for the year.

The Week Ahead

Earnings Season begins this week on Tuesday with results from Alcoa (AA) and biotechnology giant Genentech (DNA). Gannett Company, Inc. (GCI), Monsanto Company (MON), and insurance provider Progressive (PGR) report earnings before the market opens on Wednesday. Costco (COST), PepsiCo. (PEP), Safeway (SWY) and Harley Davidson (HOG) announce earnings before the market opens Thursday. General Electric (GE) will report results on Friday before the bell.

This week promises to have important economic data that should affect the market. The September Wholesale Inventories data will be reported on Tuesday morning. The weekly Crude Oil inventories will be released Wednesday morning before the open, while the Fed FOMC minutes will be released after the close. The latter is likely to be actively read by investors looking for clues on the direction of inflation and interest rates. The Fed's Beige Book will be released on Thursday and should also be carefully watched. Friday, before the bell, the August Import and Export and September Retail Sales will be reported, followed by the September Michigan Sentiment Survey. The August Business Inventories will be reported mid-morning, also on Friday.

Chicago's Fed President, Michael Moskow, speaks at a real estate gala on Tuesday in Chicago. Telecom giant, LM Ericcson Telephone Company (ERIC), holds a conference call to update investors on the company's outlook on Thursday. Bear Stearns holds its annual two-day Retail Investor Conference on Wednesday in New York.

In summary, investors should focused on the early earnings reports beginning to come out this week.

Stay tuned!