Coming Week: Doubting the Economic Picture

NEW YORK (TheStreet) -- August, known for lazy days and vacationing traders, may have a decidedly darker tone in its final five trading sessions after doubts about the economic recovery crept into the market's psyche this past week.

The S&P 500 closed near the 1070 mark on Friday, and while stocks have jostled for much of the summer months, one market participant couldn't help but note the S&P's wide trading range and its drifting back to levels last seen at the beginning of the summer.

"From a very broad perspective, we got through earnings season after the first quarter at the end of April, and the market had a sharp correction from late April to late May, and we're right where we were at the end of May," said Gary Flam, portfolio manager at Bel Air Investment Advisors. "So, that 'sell in May and go away' adage has really proved true this summer. And I think as we get into September and people refocus again, that's when it'll get a little more interesting."

But recovery fears look very real right now. Stocks got hit by a wave of disappointing economic news to end the week, sending the major stock market averages tumbling as investors sought shelter from risk. The Dow Jones Industrial Average alone shed 1.4% Thursday and another 0.6% Friday, following reports that more workers applied for unemployment benefits and factory activity unexpectedly slowed in the East. The Dow ended Friday down a little more than 4% in the past two weeks.

Despite more promising corporate earnings news and headlines showing a pick-up in M&A activity, market observers will be focused intently on any new signs of an economic slowdown in the week ahead. Evidence of deterioration could put pressure on Federal Reserve officials to go beyond their marginal quantitative easing plans, observers say. Thus, investors will pay close attention to comments from central bankers next week. Fed chairman Ben Bernanke, for one, is scheduled to speak at the Kansas City Fed's annual symposium in Jackson Hole, Wyo. being held Aug. 26-28.

"We think the Fed kind of missed a chance here in August to do a big policy move. They did announce a kind of mini-quantitative easing, but now I think the drumbeat is building for them to do another massive quantitative easing," said John Canally, economist at LPL Financial. "The Fed's kind of gotta start hinting that they're going to do more, or I think the market is going to be even more disappointed."

Two of next week's reports stand out.

"Initial claims and GDP are going to be the big main ones that people are going to look at and may have the most impact," said Doug Roberts, chief investment strategist at Channel Capital Research.