National politics and

Federal Reserve

policy will make headlines in the coming week. Whether the market can translate the results in a way that sustains the recent rally remains to be seen.

On Tuesday, voters will decide elections that could shift the balance of power in Congress, where Democrats very narrowly control the Senate and Republicans have a slim edge in the House. Across the country, several races remain hotly contested.

The next day, the Fed will announce a decision on interest rates, now at their lowest level in over 40 years. In the past two weeks, disappointing reports on durable goods orders, consumer confidence, GDP, manufacturing and employment have raised market hopes for a reduction.

Stocks are coming off a month in which the

Dow Jones Industrial Average

gained 10.6%, its second-best October percentage gain ever, while

Nasdaq

rose 13.5%, and the

S&P 500

advanced 9.4%.

That could mean the averages are nearing a near-term ceiling.According to a study by Paul Cherney, an analyst at S&P MarketScope, the S&P 500 has gained 12.6% in the fourth quarter, on average, every year since 1960, when it ended with losses of more than 10% in the third quarter.

With S&P 500 up almost 10% in the fourth quarter, most of the gains may be in already.

"The market is running out of upside momentum," Cherney said. "We might get a day or two of gains next week, and then start a period ofconsolidation that could last for a couple of weeks."

Fed funds futures, a good gauge of monetary policy, are pricing in 100% odds of a 25 basis-point interest rate cut. The probability rose on Friday after the release of disappointing October jobs data, which showed the economy shed 5,000 jobs while the unemployment rate ticked up to 5.7%.

"The report revealed risks to a moderate recovery," said Josh Feinman, an economist at Deutsche Asset Management. "It is becoming increasingly likely that the Fed is going to move on Wednesday."

Since the market expects a quarter-point cut, stocks may not react if that's what emerges. Major indices ended last week with muted gains, with the Dow up 74 points, or 0.87%, at 8517.64, the Nasdaq Composite ahead 29.6 points, or 2.2%, to 1360.7, and the S&P 500 rising 3.31 points, or 0.37%, to 900.96.

"I do not think the news will break the market out of a trading range," said Jay Meagrow, a trader at McDonald, who predicted volume will be light on Monday, ahead of the week's big events.

Elections are tightest in the Senate, where there were 50Democrats, 49 Republicans, and one independent until the death of Minnesota Sen. Paul Wellstone, a Democrat, a little over a week ago.

"If Republicans take both houses of Congress on Tuesday, the marketcould rally on hopes for an end to gridlock," said Christopher Low, aneconomist at First Tennessee Capital Markets. "But the margin of victory would be so slim that it would not cause much of a change in the legislative agenda."

Among data to be released next week is productivity, which is expected to show a gain of 4.2% in the third quarter, compared with 1.5% in the second quarter, as hours-worked fell but economic growth rose.

Also, third-quarter earnings season will wind down, with

Fisher Scientific

(FSH)

,

Calpine

(CPN)

,

Prudential Financial

(PRU) - Get Report

,

Halliburton

(HAL) - Get Report

,

Loews

(LTR)

and

Cisco

(CSCO) - Get Report

scheduled to report results.