The Eve Before the Election

Investors began leaving early this afternoon to get ready for tomorrow's election. Whether they left the building or not, is anyone's guess. The thing is, they certainly weren't doing very much. Volume today, while not at record lows, was very light. Only about 890 million shares traded on the NYSE, while the NASDAQ (COMPX) saw just over 1.5 billion shares exchanged.

Despite the dearth of players, the Dow Industrials (INDU) managed to put on a stellar performance, closing up 159.26 to 10,977.21 and breaking the 11,000 level for the first time in several sessions. Meanwhile, the COMPX closed down 35.18 points to 3,416. The NYSE saw advancers barely beat decliners by 1413/1379 with, 518 unchanged. Over on the COMPX, the A/D line was negative at 1804/2141, with 689 closing where they began.

Big events that captured traders' attention today were the election tomorrow and the Cisco (CSCO) earnings due after the bell. Considered a bellweather for the techs, CSCO beat estimates by the proverbial penny, posting $0.18 per share versus the First Call estimate for $0.17. CSCO was among the most actively traded issues today, closing down $1.63 to $55.13 on volume of 64 million shares during regular trading. CSCO reported net income surged 66% from $814 million to $1.4 billion, while revenues grew from $ 3.9 billion to $ 6.5 billion. More importantly, though, investors focused on the company's comments that while business was strong, it was concerned about sector spending, which sent the stock down another $2 in after-hours trading.

On the COMPX, Oracle (ORCL) led the most actives, as it was slammed again today by investor concerns over the company's future earnings. ORCL dropped $2.38 to $27.94 on volume of 75.2 million shares. Another active player on the COMPX was software giant Microsoft (MSFT), which gained $1.25 to $69.50 on volume of 36.5 million shares.

On the NYSE, the telecom stocks dominated trading. Sprint-PCS (PCS) led the list, trading 22.3 million shares to drop $1.57 to $26.93 thanks to Morgan Stanley (MDW) cutting its target on PCS from $65 to 58. AT&T (T) and its offspring, Lucent (LU), came in as the second most active issue. AT&T dropped $0.50 to 21.93 in sympathy with PCS, but Lucent gained $0.25 to $24.07. Nortel (NT) also fell $1.38 to $43.75 on 14.4 million shares in response to its downgrade by CE Unterberg Towbin from "strong buy" to "buy."

Philip Morris (MO) rounded out the top of the NYSE most active by dropping $0.13 to $34.88 on 16.4 million shares. This morning, the European Union announced it was suing big tobacco, claiming it participated in smuggling cigarettes into those countries.

In other stock news, Adobe Systems (ADBE) gained $2.57 to $83.25 on double average daily volume, as it announced it has updated its earnings model by increasing margins and reinstating its earnings for the fiscal year. Freewheeling operating system Linux shares suffered today. VA Linux (LNUX) led the retreat, dropping $12.63 to $17.38 on seven times average daily volume, as the stock lost 42 percent. Other Linux developers Red Hat (RHAT) and Caldera (CALD) also dropped in sympathy.

Voicestream Communications (VSTR) in after-hours expanded its loss to $3.02 per share compared to a loss of $0.97 per share last year. Stock in VSTR climbed in after hours, as it reported revenue and subscriber exceeded expectations. Deutsche Telekom (DT) is acquiring VSTR.

Nuance Communications (NUAN) jumped $14.06 to $101.94 on word that it and Ask Jeeves (ASKJ) formed an alliance to deliver voice product to offer ASKJ corporate clients.

The last two of the "E's", euro and energy, had little movement today. Oil was relatively unchanged at +0.15, closing at $32.86 a barrel. The euro was helped by intervention from the European Central Bank and rose slightly to close at $0.862.

Going forward, the consensus in the market, like the election, is too close to call. Barring any surprise in the election, the market will probably rally at least in the short-term, but whether it sticks is anyone's guess. Many analysts have indicated they don't think the election outcome will have a definitive impact on the market overall. Guess what? They're on to something. Since 1900, the market has risen 10 of 13 times after a Republican win and only 4 of the 12 times after a Democrat win. What's more, in the month after the Presidential election, the market climbed an average of 2.49% when Republicans won and fell 1.13% when Democrats won.

Other factors coming into plays include mutual fund inflows, which so far this month have exceeded those for October, as investors expect a seasonal run. Conversely, the Commitment of Traders Report (COT) continues to show professional traders increasing their short positions in the S&P 500 (SPX), while small traders maintain long positions.

Traders are still divided about how slow the economy will get before it turns around. The reaction of the bond market seems to be indicating that the economy isn't slowing enough in spite of reductions in corporate earnings. The rate on the 30- year Bond climbed 43 basis points taking the yield to 58.88. Some traders expect that further rate hikes may be necessary to cool the economy. If this is true, look for stocks to move significantly lower over the longer term.

Remember to exercise your responsibility tomorrow and vote early and vote often. More importantly, be ready for a possible market move in either direction.