Reaching for new highs

NEW YORK (CNNMoney.com) -- Investors took last week's surprisingly weak GDP report in stride, pushing the Dow Jones industrial average to an all-time high regardless. But the week ahead could test the market's mettle with a barrage of critical reads on the economy.

The Dow (Charts) ended last week at an all-time high for the third session running. The Russell 2000 (Charts) small-cap index ended the week just below an all-time high, the Nasdaq composite (Charts) ended at a 6-year high and the S&P 500 (Charts) index finished up just below a more than six year high.

"Short term, I think the trend is still on the upside," said Tim Hartzell, chief investment officer at Kanaly Trust Company. However, that trend could be challenged by the upcoming reports.

The April employment report, due Friday, is likely the biggest economic news of the month. Ahead of that, investors get readings on construction spending, pending home sales, factory orders, the manufacturing and services sectors and personal income and spending. (see chart for details).

The earnings parade continues next week too, but with nearly two-thirds of the S&P 500 having already reported results, market participants already have a pretty good sense of the overall picture. Also, less prominent companies are on the docket for next week, reducing the influence of the earnings.

Between the recent economic readings and the comments from the Federal Reserve, market participants have been made well aware that the economy is slowing. However, the current perception seems to be that it is not slowing enough to push the economy into recession.

Too many weaker-than-expected reports could change that perspective.

Next to the jobs report, the personal income and spending readings Monday are probably the most relevant readings for stock investors in the week ahead, amid worries about how the housing bust will impact consumer spending.

In addition, the PCE deflator, the report's inflation component, will be closely watched.

One of the worries about housing is that it will drag on consumer spending, as the refinancing boom had helped put money in the hands of consumers. Spending fuels roughly two-thirds of the U.S. economy.

Friday's first-quarter GDP report, in addition to showing the slowest pace of growth in four years, also showed surprising strength in its consumer spending component. So Wall Streeters will be looking for the income and spending reports to second that.

The GDP report also showed a bigger-than-expected jump in its inflation components.

"There's some risk to the consumer and to the inflation outlook, so the PCE deflator Monday will be significant," said Jonathan Golub, U.S. equity strategist at JP Morgan Asset Management.

S&P 500 earnings in the first quarter are expected to have grown at a 6.8 percent rate versus a year earlier, according to the latest Thomson Financial estimates.

That's more than twice what analysts were looking for just a month ago, but still the slowest pace of growth in 3-1/2 years.

Nonetheless, the earnings have been good enough to help to drive the market to its recent highs.

"There's been some rejoicing about the earnings, but a lot of what you're seeing is being moved by stock buybacks and mergers and acquisitions," said Tim Hartzell, chief investment officer at Kanaly Trust Company.

He said that these factors are likely to remain in place for the time being.

Standout reports due in the week ahead include Dow components Verizon Communications (Charts, Fortune 500), Procter & Gamble (Charts, Fortune 500) and General Motors (Charts, Fortune 500). (See chart for details).