There is no doubt that CNBC’s extensive coverage of the 24-hour general strike in Greece — where 20,000 anti-austerity protestors clashed with riot police and blockaded Parliament — spooked the stock market in the middle of last week. By Friday, however, Wall Street managed to eke out its first weekly gain since April, with the Dow closing above 12,000 and the S&P 500 rising by all of 0.04%! While the financial disaster in Greece made for fascinating TV, I was shocked that the media forgot to mention that the S&P 500’s earnings are now at a record high and another strong earning season begins soon.

Greece Dominates the Headlines Once Again

The Greek crisis dominated the international news last week, but in the end, German Chancellor Angela Merkel caved in and abandoned her hard-line stance, allowing a rollover of Greek debt to private creditors. The reason that Ms. Merkel was playing hardball is that German citizens are furious that their taxes keep rising to bail out Greece, making any further bridge loans to Greece politically risky.

Yields on two-year Greek debt exceeded 30% last week, so a rising fear of default is already priced into the bonds. Furthermore, other EU members with high and rising debt loads — like Ireland, Portugal, Spain, Italy, Belgium and even France — could follow Greece’s lead, making further euro-zone defaults possible.

Greece’s unemployment rose to 15.9% in the first quarter, up from 14.2% in the fourth quarter and 11.2% in the first quarter of 2010, so it appears that Greece’s austerity measures are only resulting in rising unemployment, causing citizens to become even more unruly. The real problem is that, as Greek interest rates rise, it takes even more drastic austerity cuts to try to finance those crippling 30% interest coupons.

Complicating matters for Greece, Standard & Poor’s Rating Service downgraded Greece’s debt three notches, from B to CCC, effectively dropping it to the bottom of the 131 countries with sovereign debt ratings. (Moody’s and Fitch have also downgraded Greece in recent weeks.) This ultra-deep “junk” rating is astonishing, since Greece had an “A” rating from the folks at S&P as recently as January 2009. Even worse, S&P said that the likelihood of a Greek default is “significantly higher” over the next year.

As a result of the latest Greek crisis, the euro had its worst week since 2009. However, the euro seemed to stabilize on Thursday and Friday after EU officials expressed confidence that a new rescue package would seek to arrange another bridge loan, or restructure Greece’s debt with the aid of private investors.

This week, stocks are rising on hopes that a vote of confidence in the Greek government later today will help the country avoid a default. Let’s hope that’s true, but the real story for U.S. stock investors is closer to home.

U.S. Inflation Dips to 0.2%

On Tuesday, the Labor Department reported that the Producer Price Index (PPI) rose 0.2% in May, the smallest gain since July of 2010. The core PPI, excluding food and energy, also rose 0.2%. The most dramatic change was a 40% decline in the price of vegetables, causing wholesale food prices to fall 1.4%, the biggest decline in a year. Wholesale energy prices rose 1.5%, but that was the smallest monthly gain since September. Due predominately to rising energy costs — up 25% in the past year — the PPI has risen by a composite 7.3% in the past 12 months, while the core PPI is only up a modest 2.1%.

Then, on Wednesday, the Labor Department reported that the Consumer Price Index (CPI) also rose 0.2% in May. The core CPI, excluding food and energy, rose 0.3%. In the past 12 months, however, the CPI has risen 3.6%, the fastest annual pace since October 2008. The best news in the May CPI report was a 2% decline in gasoline prices, causing energy costs to decline 1%. Due to a 0.4% rise in food prices, these lower energy prices were masked, but Wall Street was encouraged that energy prices finally fell.

Inflation is down, in part, due to slower demand. On Tuesday, the Commerce Department said that May retail sales fell 0.2%, the first monthly decline after 10 straight gains. However, economists had expected a decline of 0.7%, so a 0.2% drop was encouraging. Excluding a 2.9% decline in vehicle sales (the largest drop in 15 months), May’s retail sales were actually UP by a net 0.3%. These figures tell me that high gasoline prices are causing consumers to shy away from buying new vehicles and to plan fewer shopping trips.

A weak U.S. dollar continues to boost the manufacturing sector. On Wednesday, the Fed announced that industrial production rose 0.1% in May, but excluding a 1.5% drop in motor vehicles and related parts, industrial output rose by a more impressive 0.6%. Overall, it appears that U.S economic growth is decent outside of the auto industry, which clearly hindered May’s retail sales and industrial production figures.

Despite the better-than-expected May retail sales report, on Friday, the University of Michigan/Reuters consumer sentiment index declined to 71.8, down from 74.3 in May. The survey revealed that many consumers believe that the recession has not ended. Due to weak housing prices and high unemployment, consumers will likely remain skeptical of the economic recovery until their personal situations improve.

On Thursday, the Labor Department announced that new jobless claims declined to 414,000 in the latest week, down from a revised 430,000 the previous week. The bad news is that this represented the 10th straight week that new jobless claims remained above 400,000, where new job creation tends to stall.

Despite the growing evidence that the U.S. economy has slowed, the Conference Board announced on Friday that its index of Leading Economic Indicators (LEI) surged 0.8% in May – much better than the economists’ consensus estimate of a 0.5% rise. Unlike most other indicators released last week, these 10 leading indicators look forward, not backward, so the LEI gives us hope that growth will revive soon.

Global Growth Fueling Record U.S. Profits

The IMF announced on Friday that it expects the global economy to slow in the second quarter but then reaccelerate in the third and fourth quarters. Specifically, the IMF predicted 4.3% global GDP growth in 2011, and 4.5% growth in 2012. To support this bullish scenario, the IMF cited accommodative monetary policies, pent-up demand for consumer goods and strong growth in emerging and developing economies.

Despite low inflation in the United States, China announced that its consumer price inflation rose 5.5% in May to a three-year high. China’s wholesale prices rose even faster, at a 6.8% annual pace. As a result, China’s central bank raised its reserve requirement to a record 21.5% Tuesday, in an effort to slow down inflation.

China’s industrial production rose 13.3% in May, about the same as the 13.4% gain in April. Retail sales growth in China “slowed” to 16.9% in May, down from 17.1% in April. Clearly, China’s central bank is trying to engineer a soft landing – lower inflation and slightly slower (but still robust) economic growth.

India is also trying to engineer a “soft landing.” On Thursday, the Reserve Bank of India raised its key interest (repo) rate by 0.25% to 7.5% due to rising inflationary pressures and slowing growth: India’s annualized GDP growth rate slowed to 7.8% in the first quarter, down from 8.3% in the fourth quarter.

As U.S. politicians focus more on the U.S. economy, it’s important to remember that the global economy is strong. Since most S&P 500 companies earn a large portion of their profits overseas, often denominated in stronger currencies, their quarterly earnings enjoy a currency “tailwind” when translated into dollars.

The stock market is all about corporate profitability, so the market should recover when the mainstream media start reporting the next round of record-high corporate earnings (despite stubbornly high jobless rates). As investors, we want CNBC and the other mainstream media to focus on strong corporate profits. This will help boost investor confidence as the second quarter earnings announcement season approaches.