Rally rolls on. But watch out come January

There are plenty of reasons stocks can keep rising through year-end. But 2007 will pose some challenges.

NEW YORK (CNNMoney.com) -- With the Congressional elections finally over and done, the third-oldest bull market in history seems set to roll on through the end of the year. Come January, though, that could change.

Many market pros say the outlook for stocks is good the next six weeks, even though stocks have had a big run since July. They cite strong earnings, lower oil prices, a Fed that seems to be on the sidelines for now, and the belief that the economy is headed for a so-called "soft landing."

Besides, November and December are typically strong months for stocks, making the fourth quarter the best one on Wall Street.

The last roadblock for the rally was the Congressional elections, amid speculation about how traditionally Republican Wall Street might react if the Democrats took both chambers of Congress. Well, they did, for the first time since 1994. How did stock investors take it? The Dow just closed at its 17th record high since early October.

But what happens in the first quarter of next year is anyone's guess, especially if Ben Bernanke & Co. at the Fed don't hint they're getting set to cut interest rates, as many investors are hoping. (Note: Despite signs price pressures are easing, the Fed's still worried about inflation.)

What if earnings finally do slow down and grow at less than a 10 percent rate? And what if the Democrats pass a minimum wage hike, pass trade protection bills and take aim at taxes when the 110th Congress convenes in January.

Could all of that prove to be the proverbial straw that breaks the bull's back? Maybe, maybe not, but there's still plenty to give the bull a backache.

Here's what to keep an eye on heading into the first quarter of 2007.

A two-year interest rate hiking campaign came to a halt in August, and investors have been hoping the Fed's next move will be to cut interest rates, perhaps as soon as the first half of next year.

That assumes the economy will slow enough to counter inflationary pressures, sparking a need for rate cuts, which tend to spur growth and boost profits, giving a lift to stock prices.

But some recent economic reports and comments from central bankers have suggested the economic slowdown may be short-lived. And while inflation pressures are easing, the Fed still says inflation is its biggest worry, not slowing growth.