Stocks Sidestep D.C. Drama

Despite political upheaval, stocks end modestly higher, and the Dow establishes a new all-time high.
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Washington, D.C., may have changed its stripes in the past 24 hours, but the stock market sees only green.

Indeed, investors were just as moved Wednesday by the prospect of

Microsoft's

(MSFT) - Get Report

Vista operating system's rollout and anticipation of

Cisco Systems'

(CSCO) - Get Report

earnings (which did not disappoint) than the Democratic victory on Capitol Hill or Secretary of Defense Donald Rumsfeld's resignation.

If

Exxon Mobil

(XOM) - Get Report

and

Altria

(MO) - Get Report

can lead the

Dow Jones Industrial Average

to a new record closing high the day after a Democratic victory in midterm elections, the stock market apparently does not fear, or loathe, Democratic control of the House or the Senate. Exxon's and Altria's shares climbed 2.21% and 1.39%, respectively.

"You would have seen disappointment registered if it was going to be registered," says Louise Yamada, of Louise Yamada Technical Research Advisors. "The Dow rally looks like it has legs."

After weakening in the first half of the trading session, the markets rebounded in the afternoon. The Dow closed up 0.2% to a record 12,177.27, while

S&P 500

gained 0.22% to 1385.91. The

Nasdaq Composite

climbed 0.4% to 2385.43.

While the wave of anti-incumbent sentiment turned the tide in Washington, Wall Street was seemingly no more concerned than it was Tuesday about the impact of minimum-wage legislation, debate over the Bush tax cuts, hearings on big oil profits, potentially more financial regulation, or any other policy changes that might take place.

"This is still gridlock," says Art Hogan, chief market analyst at Jefferies & Co., noting that the president is unlikely to be able to start a war in another country and can't cut more taxes with the Democrats in control of at least the House of Representatives. (At the time of publication, control of the Senate remained unclear, pending the outcome of a very tight race in Virginia between Republican Sen. George Allen and Democrat Jim Webb.)

Hogan believes the defense budget is a "sacred cow" and will go untouched, while Big Pharma may be a concern. Repealing tax incentives for big integrated oil companies would take a long time to get through, he says, and while there may be some changes afoot from the legislative branch, the Democrats are still dealing with a close call in the Senate and a possible presidential veto.

Shares of defense contractor

Halliburton

(HAL) - Get Report

were up 0.54% on the day, as integrated oil companies soared. Shares of Exxon,

Chevron

(CVX) - Get Report

and

BP

(BP) - Get Report

each gained over 1% on the day. The price of oil jumped $1.05 to close at $59.98 per barrel.

Nonetheless, the market did reflect some impact by the 2006 midterm election.

"This is more of a sector story than anything else right now," says Barry Hyman, chief investment strategist at EKN Financial. That said, the market was really only worried about one sector -- the pharmaceutical sector.

Shares of health care and pharmaceutical companies suffered Wednesday as the Democrats may legislate lower prices of prescription drugs for Medicare recipients. Shares of

Pfizer

(PFE) - Get Report

,

Merck

(MRK) - Get Report

,

Johnson & Johnson

(JNJ) - Get Report

and

Glaxosmithkline

(GSK) - Get Report

dropped more than 1% on the day.

Shares of health insurance companies likewise plummeted as years of huge profit growth are likely to end under Democratic leadership in Washington, which could well bring change and reform to the system. Shares of

Aetna

(AET)

,

Cigna

(CI) - Get Report

,

Humana

(HUM) - Get Report

, and

WellPoint

(WLP)

declined between 1.77% and 5.9%.

Generic drug companies, which are said to be winners under Democratic leadership, didn't fare much better than their full-price brethren. Shares of

Teva Pharmaceutical

(TEVA) - Get Report

and

Mylan Labs

(MYL) - Get Report

ended the day down 0.09% and 0.39%, respectively, while shares of

Barr Pharmaceuticals

(BRL)

couldn't overcome disappointing earnings and dropped 3.6% on the day.

Shares of

Freddie Mac

(FRE)

and

Fannie Mae

(FNM)

, obvious benefactors of Democratic policies, climbed 2% and 2.9%, respectively.

After digesting the election news, investors bid up the Nasdaq based on some big news in technology. Microsoft's new operating system Vista is ready, which sent its shares up just 0.1%, but it touched a new 52-week high of $29.23 intraday. Shares of Cisco were up 1.05% on the day ahead of its

strong third-quarter earnings report and were higher 3.6% in post-market trading.

So while many things have changed in the past 24 hours, the market's

song remains the same and its melody is still gridlock.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click

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