Big week; a big reaction?

Market observations for the week of Oct.25 to Oct. 29, 2010

Claymore Investments, Inc. 2 November, 2010 | 9:44PM

The major market indices finished the week little changed as investors appeared indecisive ahead of this week's barrage of market-moving events. Stocks have been trending sideways for the past couple of weeks as the markets appear to be caught in a period of price discovery while investors try to gauge what is currently discounted in the market and what is likely to come to fruition. The upcoming week is arguably one of the most important weeks of the year and the reaction to this week's events could set the tone of trading for the remainder of the year.

Known unknowns

While Republicans are expected to make significant headway in Tuesday's midterm elections in the United States, and the Federal Open Market Committee (FOMC) is likely to embark on another round of quantitative easing (QE) on Wednesday, there still appears to be many known unknowns. For instance, with a strong likelihood that the Republicans capture at least the House, the question becomes will this gridlock scenario lead to a lame duck environment (i.e. nothing gets done) or will a period of compromise develop? To get things like the Bush tax cuts extended, obviously compromise will be needed and the question then becomes whether disgruntled politicians have the intestinal fortitude to swallow their pride? The answer will likely depend on the final vote tally and the makeup of the new Congress.

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Claymore Investments, Inc.

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