Dow sets record after vote surprise

Techs lead turnaround as investors move beyond possible Democratic control of Congress, Rumsfeld quitting; Nasdaq at new almost 6-year high.

By Alexandra Twin, senior writer

NEW YORK ( -- Stocks inched higher Wednesday, lifting the Dow to a new record close after a tough session, as investors came to terms with the likelihood of gridlock and Democratic Party control of all of Congress.

The Dow Jones industrial average (up 19.77 to 12,176.54, Charts) closed at a fresh all-time high. The broader S&P 500 (up 2.88 to 1,385.72, Charts) index added a few points.

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The tech-fueled Nasdaq composite (up 9.06 to 2,384.94, Charts) added 0.4 percent. The Nasdaq closed at its highest level since February 2001.

Stocks struggled in the morning after the results of the Congressional election showed a projected win for the Democrats in the House of Representatives, as expected, but also showed a possible win in the Senate too, which wasn't expected.

After the close, wire services declared the Democrat the winner in the race for Virginia's Senate seat, which would give the party control of that chamber.

Investors were dealt another surprise Wednesday afternoon: news that Defense Secretary Donald Rumsfeld will resign, to be replaced by former CIA chief Robert Gates.

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

By the mid-afternoon, stocks were back in positive territory, with technology and energy the most upbeat sectors.

"I think the bottom line message is that you're not likely to get any market-moving legislation out of this Congress," said Hugh Johnson, chief investment officer at Johnson Illington Advisors.

That's partly because internal divisions within the two parties make it unlikely that any big legislation will be agreed upon in the next two years, Johnson said.

In addition, he said that should the Democratic Party, for example, attempt to get market-moving legislation passed, such as something that impacts fiscal policy, "the next thing you're going to see is a four-letter word that starts with 'v'."

As in "veto."

Johnson said that market participants realize this and are now back to focusing on other issues, such as the positives that have boosted stocks for months. 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.

After the close, tech leader Cisco Systems (Charts) reported quarterly sales and earnings that rose from a year earlier and topped forecasts.

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 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.

Techs rise, drugs and defense fall

A variety of big technology stocks rose, including Yahoo! (up $0.29 to $26.90, Charts) and Apple Computer (up $1.94 to $82.45, Charts).

Microsoft (up $0.03 to $28.98, Charts) shares were little changed after the software leader said that its long-delayed Vista is complete and ready to be shipped.

Oil stocks rose along with the price of the raw commodity, giving the market some strength. The Amex Oil (up 16.10 to 1,166.57, Charts) index added 1.4 percent.

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

Dow losers included Pfizer (down $0.67 to $26.62, Charts), Johnson & Johnson (down $0.72 to $67.99, Charts) and Merck (down $1.56 to $44.34, Charts) which lost 3.4 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, including Lockheed Martin (down $1.04 to $86.45, Charts), Northrop Grumman (down $1.42 to $64.98, Charts) and Raytheon (down $0.72 to $48.96, Charts). Dow stock Boeing (up $0.90 to $85.45, Charts) had fallen in the morning, but recovered in the afternoon.

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 $0.32 to $3.39, Charts) and Geron (up $0.28 to $8.66, Charts) both climbed.

Market breadth was positive. On the New York Stock Exchange, winners topped losers five to three on volume of 1.69 billion shares. On the Nasdaq, advancers beat decliners three to two on volume of 2.11 billion shares.

U.S. light crude oil for December delivery rose 90 cents to settle at $59.83 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 4.63 percent from around 4.66 percent late Monday. Bond prices and yields move in opposite directions.

COMEX gold fell $9.40 to settle at $618.30 an ounce.

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