updated 5/30/2005 10:58:46 AM ET 2005-05-30T14:58:46

The U.S. economy is growing at a moderate pace — fast enough to encourage investment and create jobs, but slow enough that inflation isn't a major risk.

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It's what is know on Wall Street as a 'Goldilocks economy' — not too hot and not too cold, the same way the fairy tale character preferred her porridge.

The question, however, is whether investors are ready to take advantage of these benign conditions.

Last week's reading of the nation's first-quarter gross domestic product gave credence to the Federal Reserve's policy of steady but modest interest rate hikes. Inflation remains in check, but rates are still relatively low, which means corporate America has inexpensive access to capital for expansion.

"I think the GDP numbers gave people more comfort that the growth path for the economy is reasonable," said Kurt Wolfgruber, chief investment officer at Oppenheimer Funds. "It gives me comfort that things are OK and the market can advance."

And investors seem to have responded with a second week of strong gains despite a resurgence in crude oil prices that approached $52 per barrel. With Wall Street no longer selling off at the first hint of bad news, as it had for much of March and April, analysts expect the market to continue to rally — slowly and perhaps unevenly at times — through the summer.

Video: Stocks, or real estate? A key test for the market will come Friday with the Labor Department's monthly job creation report. If the labor market can continue to produce jobs at a consistent rate, that could remove another doubt for many investors. Stocks may lag slightly a few days ahead of the report as investors hedge against any negative surprises.

Last week, the GDP report helped Wall Street overcome worries about the strength of economic expansion and paved the way for Wall Street's second straight week of gains. For the week, the Dow Jones industrial average gained 0.67 percent, the Standard & Poor's 500 index added 0.80 percent and the Nasdaq composite index rose 1.43 percent.

Economic news
Friday's job creation report will likely set the tone for much of the month's trading. Analysts expect the economy to have created 180,000 jobs in May — a good showing, but less than the surprisingly strong 274,000 jobs reported in April. The previous month's report set off worries that strong job growth would lead to higher consumer demand and, in turn, inflation, and that riled the markets and left stocks mixed for the session. A middle-of-the-road report would likely garner the best reaction on Wall Street.

In other economic news, the Institute for Supply Management will release its manufacturing index before Wednesday's trading session. The index, which measures the strength of the industrial sector, was expected to fall to 52.2 in May, down from 53.3 in April, a reflection of higher raw material prices.

Only a handful of companies are slated to report their quarterly results this week. Luxury retailer Neiman Marcus Group Inc., which is slated to issue its earnings after Wednesday's session, is expected to earn $1.52 per share for the quarter, up from $1.40 per share a year ago. The company, in the midst of a $5.1 billion buyout by a private investment group, has seen its stock rise almost 96 percent from its 52-week low of $49.52 on Aug. 12. The stock closed Friday at $96.95.

With just a month to go before the end of the second quarter, companies will begin to issue guidance on their upcoming earnings — and the holiday-shortened week could see a number of companies warning that their numbers may fall below expectations.

The automotive industry will release its May sales figures on Wednesday, which could spark volatility among suppliers as well as the automakers themselves. Retailers will also begin tallying up their monthly results in the week ahead and the week after.

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