Published: Friday, 31 Jul 2009 | 7:22 PM ET

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Stock traders say it's not time to fold 'em, but you might want to take some profits off the table.

Oliver Quillia for CNBC.com New York Stock Exchange, in lower Manhattan.

In the week ahead, investors will shift focus from earnings reports to hard economic data. The July jobs report Friday is the big event. But auto sales will also be important when they are reported Monday, particularly after Congress looks set to extend the highly popular "cash for clunkers" program. Just how much that revved up July's sales is yet to be seen.

A number of Wall Street economists, meanwhile, are raising forecasts for second half growth after Friday's second quarter GDP showed a surprising decline in inventories. Earnings season continues, though most major companies have now reported. Cisco

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[CSCO  Loading...      ()   ], Procter and Gamble

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[KFT  Loading...      ()   ] are among those expected in the week ahead.

Stocks finished out July with a more than 7 percent gain. The Dow was up more than 8.5 percent at 9171, scoring its best July since 1989. The S&P 500 was up 7.4 percent at 987, and the Nasdaq was up 7.8 percent for the month at 1978.

Since early March, stocks have rallied in a global economic recovery trade that has taken risk assets like metal and oil higher and pushed the dollar to its lows of the year. The latest catalyst has been U.S. corporate earnings reports and signs of stabilization in some economic data. To date, S&P 500 companies so far beat Wall Street estimates 74 percent of the time this quarter.

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"I always ask myself what do earnings announcements cause analysts to do? The answer is, as a result of this, third quarter and fourth quarter numbers have been raised," said Robert Doll, vice chairman and chief investment officer at BlackRock.

Doll said critics of the earnings gains point to the fact that companies have shown improvement mainly by cost cutting, but he says the sequential, quarter over quarter improvement in revenues seen by a lot of companies is a positive sign. Analysts are now projecting earnings estimate increases further out in time, which could justify higher valuations.

"I consider that to be constructive. There's a lot of disbelievers, as exhibited by the cash on the sidelines that's getting put in slowly but surely," said Doll. He said the "pain trade" may now be felt by investors who have held onto too much cash.

"Am I in the camp that says because we are up so much in a very short time, could we pull back? Yes, but we're in a pattern where we've established higher and higher lows and we could pull back," said . "But for now, the trend is higher."

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Doll though maintains a year-end target of 1050, even as the S&P moves closer to that level. He said he does not expect to change it.

"I don't think this is going to be straight up...Maybe we get a pullback and come back down. Maybe we get higher than that. If the number is wrong, it's higher rather than lower, but I'm very content with that target," said Doll.

Econorama

Friday's jobs data is the big number for the week. It should show the unemployment rate creeping closer to 10 percent but a slowdown in the rate of job losses.

Moody's Economy.com chief economist Mark Zandi expects non farm payrolls to decline by 305,000 and an unemployment rate of 9.6 percent. He said the news on inventory reductions in second quarter GDP and the success of the "cash for clunkers" program could help stem manufacturing job losses in future months.

"I haven't changed my job outlook, but I feel more comfortable that it will come to pass. I expect the job losses to abate over the next six to nine months, and then come to an end by next spring," he said.

Economists are ratcheting up their forecasts after second quarter GDP came in at -1 percent, better than the -1.5 percent expected. J.P. Morgan's Bruce Kasman, for instance, raised his expectation for third quarter growth to 3 percent from 2.5 percent. His reasoning for the change was larger inventory drawdowns than expected and stronger final sales. His 2010 forecast is for 4 percent growth.

Zandi raised his view for the fourth quarter to up 2 percent from 1 percent, but left third quarter at 1.5 percent. "I'm a little bit more encouraged post the (GDP) number than pre the number, but I think the recession is deeper than we thought. It is now the most severe recession since World War II," said Zandi.

"The encouraging thing is the decline last quarter and the quarter before was related to businesses just slashing inventory. They cleared the decks, got rid of unwanted stuff on shelves and warehouses...they probably cut too deeply," said Zandi.

The auto industry will contribute to third and fourth quarter growth. Zandi said for every billion spent, the cash for clunkers program generates sales of 250,000. Congress is discussing expanding the $1 billion program by another $2 billion.

"Auto sales could be up to 11 million units annualized," said Zandi. Car manufacturers report sales Monday, and Ford has already signaled that it was showing a pickup even before the clunker program started last week.

Other data expected in the coming week includes construction spending and ISM Monday, which economists will watch for signs of pickup in manufacturing activity. Personal income for June is reported Tuesday, as are pending home sales. Pending home sales are expected to be up a half percent in June.

A series of better than expected housing data in the past week encouraged some economists to believe the housing market is bottoming. Zandi, however, said he does not believe that is entirely the case. He said there is a bottoming in sales and construction but not for prices, which he expects to continue to fall.

"I don't think we're at a bottom. I think we have more price declines to go. It will intensify this winter when non distress sales decline and foreclosures pick up," he said. Zandi said the first time home buyer incentive in the federal stimulus package is helping housing, just as "clunkers" is helping the auto industry.

"The idea behind stimulus is you try to provide a jump start to the economy to short circuit the negative, self reinforcing cycle of recession and turn it into a self reinforcing positive cycle. That may not happen if we continue to lose jobs...If I'm wrong and businesses continue to lay off workers, it could hurt the economy. That's why a lot of very good economists think this could be a W shape," recovery, Zandi said, adding he sees it as a U shaped.

Other data includes ISM non-manufacturing survey, factory orders and ADP's employment report Wednesday. Weekly jobless claims are Thursday, and in addition to the employment report, consumer credit is released Friday.

On Thursday, both the Bank of England and European Central Bank hold rate meetings.

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