Bulls try to recharge on Wall Street

NEW YORK (CNNMoney.com) -- Tech stocks broke higher Wednesday afternoon following a choppy morning, as investors mulled Defense Secretary Donald Rumsfeld's resignation and the possibility that the Democrats will control Congress.

The tech-fueled Nasdaq composite (up 9.67 to 2,385.55, Charts) added nearly 0.4 percent, with roughly 2 hours left in the session.

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The Dow Jones industrial average (down 15.28 to 12,141.49, Charts) lost a few points after hitting a record trading high in the previous session. The broader S&P 500 (up 0.59 to 1,383.43, Charts) index was little changed.

The Dow had been under pressure throughout the session, while the Nasdaq had swayed between unchanged and modest losses.

But the overall tone of the market seemed to improve in the afternoon after President Bush announced that Defense Secretary Donald Rumsfeld would resign, to be replaced by former CIA chief Robert Gates.

The change reflected broad criticism of Rumsfeld's orchestration of the war in Iraq and seemed to be taken well by stock markets.

Stocks rallied Monday and Tuesday as investors geared up for Tuesday's Congressional elections, with many on Wall Street expecting the Democrats to take control of the House of Representatives, but for the Republicans to hold on to the Senate by a slim majority.

The Democrats did take control of the House, for the first time since 1994, as expected. But it was still unclear Wednesday afternoon as to which party will control the Senate, due to an undecided race in Virginia. Earlier in the afternoon, a second undecided race, in Montana, was projected to go to the Democratic candidate.

Regardless of the outcome, the impact is more likely to be felt by individual stock sectors rather than the broader market, analysts said.

"I think the market had basically factored in that there was going to be a change in the political landscape," said Ted Weisberg, a New York Stock Exchange floor trader at Seaport Securities.

"Whether you have the Democrats controlling the House or controlling both houses, you still have a Republican leader in the White House and that still means gridlock," he added.

Gridlock would limit the power of either party to push through legislation perceived as partisan, an environment acceptable to the markets.

Beyond the election, stocks are likely to continue the recent advance, with the positives that have boosted the market for months remaining in place. They include: strong earnings, the belief that the economy is headed for a so-called "soft landing" and supportive Federal Reserve policy regarding interest rates.

Among decliners, pharmaceutical, healthcare and defense stocks were under pressure, reflecting the possibility of a Democratic congress.

Dow losers included Pfizer (down $0.46 to $26.59, Charts), down 1.8 percent, Johnson & Johnson (down $1.22 to $67.49, Charts), down 1.9 percent and Merck (down $2.09 to $43.81, Charts), down over 4 percent. Merck was also under pressure on news that it is facing $5.6 billion in tax liabilities related to accounting for past transactions.

Defense stocks slid on bets that a Democratic congress would cut spending. Dow stock Boeing (down $0.30 to $84.25, Charts) slipped a bit, while competitors were hit harder, including Lockheed Martin (down $1.53 to $85.96, Charts), Northrop Grumman (down $1.40 to $65.00, Charts) and Raytheon (down $0.96 to $48.72, Charts).

Stem cell research companies rose on bets about the new Congress, including news that Missouri voters approved a measure guaranteeing federally-supported research and treatment in the state. Shares of StemCells (up $0.39 to $3.46, Charts) and Geron (up $0.33 to $8.71, Charts) both climbed.

Oil stocks rose along with the price of the raw commodity, giving the market some strength. The Amex Oil (up 13.30 to 1,163.77, Charts) index added over 1 percent.

Among other stock movers, Hospira (down $4.25 to $33.55, Charts) slumped 11.7 percent in unusually active trading after the maker of specialty pharmaceuticals reported quarterly earnings that fell from a year ago and missed forecasts by a penny-a-share.

U.S. light crude oil for December delivery rose 37 cents to $59.30 a barrel on the New York Mercantile Exchange. The price of oil had risen even more after the morning release of the weekly inventory report, which showed a smaller-than-expected rise in crude supplies.

Treasury prices rose modestly, lowering the yield on the 10-year note to 4.64 percent from around 4.66 percent late Monday. Bond prices and yields move in opposite directions.

COMEX gold fell $6.70 to $621 an ounce.

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