Egypt's Next Steps Key in Coming Week

Updated from 02/12/11

Updated to include weekend developments in Egypt and Algeria.

NEW YORK (TheStreet) -- Although the crisis in Egypt has been somewhat defused following the resignation of President Hosni Mubarak, developments in the region over the next few days could still have important implications for the markets, according to analysts.

Geopolitical risks continue to be a concern as investors wonder whether the success of citizens of Tunisia and Egypt in overthrowing their governments may drive other countries in the Middle East to also go the route of rebellion, prolonging instability in the region.

So Wall Street will be looking for signs of normalcy returning to Egypt over the weekend, according to Doug Roberts, chief market strategist of Channel Capital Research. "If things die down and everybody goes back to work then the contagion effect might die down," said Roberts. "The crisis in Tunisia spread to Egypt. Next might be Libya. But if things die down, we can say we have stuck that genie back into the bottle."

Phil Orlando of Federated Investors said Friday that while Mubarak's resignation somewhat tamped down the likelihood of a contagion, the situation remained fluid. "A lot depends on the military response to the situation in the next few days," said Orlando. "Are we going to see a military dictatorship? Or will the military say it is just helping the transition and will conduct an election in the next 30 days?"

Over the weekend, there were indications that the country might be on a stable path toward a new democratic government. Egypt's new military rulers Saturday reportedly pledged to oversee a peaceful transfer of power to an elected government and to help build a democratic nation. And on Sunday they dissolved the nation's parliament and suspended the constitution, satisfying two key demands of prodemocracy protesters, the Associated Press reported.

However, the weekend also saw antigovernment unrest elsewhere, as thousands of people in Algeria violated the government's ban on public protests and Saturday marched in the capital, Algiers, demanding democratic reforms, the Associated Press reported.

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The question of who will lead Egypt next is an important one for the markets as the county has played a key role in preserving stability in the Middle East. The Mubarak government was an ally of the U.S. and had been an anchor for the policies of Israel and Saudi Arabia as well.