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Market Preview: A Rally on Fumes

Updated from 5:12 p.m. ET to include latest share price for Xyratex and news on Intermune.

NEW YORK ( TheStreet) --The final calendar quarter of 2012 has begun and there's some worries setting in that stocks may not have much more oomph left to move higher.

Venerable market watcher Ed Yardeni opined earlier Tuesday that the S&P 500 may not be able to get much more mileage out of the Federal Reserve's pledge of unending easing.

"Whether he [Fed Chairman Ben Bernanke] is right or wrong about the stock market as a transmission mechanism between QE and the economy, no one can deny that the 'Bernanke Put' has contributed greatly to the bull market," he said in emailed commentary. "The question is whether the law of diminishing returns might be setting in already. A case can be made that the S&P 500 peaked for the year at 1465 on September 14, the day after the FOMC voted to implement QE3."

While Yardeni gives Bernanke credit for stock prices doing so well, he's much less enthused with the impact the central bank's efforts have had on the economy, calling the recovery since the financial crisis "woefully unimpressive." And he doesn't think the central bank has anything left in the toolbox to make investors feel better about the fiscal cliff.

"There certainly isn't much more the Fed can do over the rest of the year even though investors are likely to get increasingly jittery about the coming fiscal cliff," he said. "Recent data on factory orders and personal income and consumption suggest that concerns about the cliff are already depressing business and consumer spending."

Meantime, Wells Fargo chief macro strategist Gary Thayer highlighted Wednesday night's presidential debate as a potential market mover later this week.

"Investors will be watching the upcoming presidential debates to determine which political party is more likely to control Congress and enact policies to avoid the fiscal cliff," he added. "If one party appears to be doing better than the other the uncertainty over the fiscal cliff could diminish. The biggest risk would be if there is a political stalemate preventing Congress from taking action. When election uncertainty diminishes, investors are likely to look beyond the election and focus on prospects for economic growth in 2013."

The debate will surely color trading on Thursday, especially if Republican presidential candidate Mitt Romney can win the day. The latest Wall Street Journal/ NBC News poll showed the incumbent President Barack Obama is still ahead, 49% to 46%, but that's narrower than the advantage of five percentage points that Obama enjoyed coming out of the party conventions last month.
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