Rally Fades as Caution Rules

Updated from 4:05 p.m. EST

Stocks erased a modest rally late Tuesday afternoon as trading turned cautious ahead of the presidential verdict.

The Dow Jones Industrial Average closed down 18.70 points, or 0.19%, to 10,035.70, snapping a five-session winning streak. The Nasdaq extended its run of up sessions to six by adding 4.92 points, or 0.25%, to 1984.79, after briefly trading above 2000. The S&P 500 ended up 0.07 points, or 0.01%, at 1130.58.

Volume was moderate on the New York Stock Exchange, where 1.6 billion shares changed hands, with advancers ahead of decliners 5 to 4. At the Nasdaq, 1.8 billion shares traded and advancers were even with decliners.

In other markets, the 10-year Treasury note fell 1/32 to yield 4.06%, while the dollar was higher against the yen and euro and oil prices fell again.

The late-session swoon, which erased about 80 Dow points in 20 minutes, was attributed to unconfirmed early exit polling that reportedly showed Sen. John Kerry with a small lead in Ohio.

Two factors influenced Tuesday's session, said Marc Pado, U.S. market strategist at Cantor Fitzgerald. "First, both candidates came out and felt confident that there would be a resolution tonight and that was exactly what the market wanted to hear." Second, "the oil market didn't bounce back today after yesterday's big decline."

Ultimately, the market wants a resolution of the presidential campaign, and is less concerned with who wins, said Peter Cardillo, chief market analyst at S.W. Bach & Co. "If there are no new uncertainties added, I think we could probably see this bull run continue right up through the end of the year."

Larry Wachtel, senior market analyst at Wachovia Securities, said that following a flurry of postelection trading, the markets will "go into what looks like a favorable seasonal pattern," regardless of the winner.

"The Street is taking the point of view that it doesn't matter who wins the election, just that we find out soon," said Wachtel. "The fact that the election is over is the key short-term trading point -- that it is out of the way," he said. "By the time we get to the job figures on Friday, everyone will have forgotten about the election."

Oil eased Tuesday, continuing a decline that had lopped more than 10% off the price of a barrel over five sessions. After closing at a one-month low Monday on a belief that slowing economic growth could mute demand, December crude futures closed 51 cents lower at $49.62.

Lower oil prices gave a pop to airline stocks, with the Amex airline index gaining 3.8%, led by shares of Continental (CAL Quote) and JetBlue (JBLU Quote), which both closed up more than 6%.

"It looks as if inventory supplies are improving and also the fact that the fear factor built into the price of oil is beginning to diminish due to the improving fundamentals," Cardillo said.

"Many investors have said that there has been a terrorism premium priced into oil," agreed Pado. "The expectation was that the market would give back $5, once we got safely through Election Day without a domestic terrorist attack, and I think we've seen that here."