Traders and investors were in agreement on one thing as voters cast their ballots in Tuesday's U.S. presidential election: The markets want a clear winner by Wednesday morning.
U.S. equity markets rose on Tuesday, in part due to relief that the drawn-out campaign had reached its end.
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The final Reuters/Ipsos tracking poll on Monday showed a tight national race, with Democratic President Barack Obama up two points against his challenger, Republican Mitt Romney, at 48 percent to 46 percent. Polling averages show Obama with small, but critical leads in Ohio, Virginia and Iowa. Voting has ended in the first two, but exit polls did not yet indicate a winner.
TV networks projected Romney would win Indiana, Kentucky, South Carolina and West Virginia -- all reliably Republican -- while Obama would take Democratic-leaning Vermont.
Some market analysts forecast doomsday scenarios if a particular candidate wins - predictions that usually reflect their political leanings more than anything else.
Markets hate uncertainty, and having a drawn-out U.S. presidential election is one of the worst prospects. No one on either side wants a repeat of the protracted fight that followed the 2000 race between Al Gore and George W. Bush.
"If we wake up Wednesday morning and we don't know the results, that also pushes off the dealing with the fiscal cliff, which is the next most important thing in our agenda," said Art Hogan, managing director of Lazard Capital Markets in New York.
As U.S. voters cast their ballots, the U.S. stock market rallied, with the benchmark Standard & Poor's 500 Index up 0.79 percent. Over the last seven presidential election days, the S&P 500 has averaged a gain of 0.85 percent, according to Bespoke Investment Group of Harrison, New York.
"Everybody is a winner today because the market is up across the board," said Andrew Ahrens, chief executive of Lafayette, Louisiana-based Ahrens Investment Partners, which oversees about $750 million in assets. "But there may be some hangovers tomorrow."
Markets are terrified of the next step for the United States - figuring out how to avoid plunging off the fiscal cliff or $600 billion in tax increases and spending cuts that could kick in next year and send the U.S. economy reeling.
The stock market "has been directionless over the last few weeks because of uncertainty about what fiscal and tax policy looks like next year," said Perry Piazza, director of investment strategy at Contango Capital Advisors in San Francisco. "You could argue that just having the uncertainty behind us could lead to a bit of a relief rally."
Investors not only want a clear cut victory in Tuesday's election, but clarity on how the next president will work with political rivals to avoid the fiscal cliff.
"The American people know it is essential for Washington to reach agreement and solve the big problems facing this country -- especially on our growing national debt and deficits as well as immigration," said Bob Greifeld, chief executive officer at NASDAQ OMX. "Without compromise, an enduring uncertainty will continue causing corporations to husband their cash, delay capital investments, and suppress hiring."
Sheila Bair, former Federal Deposit Insurance Corporation chairwoman, said certainty was also crucial for sorting out the rules of the game in the country's financial system.
Obama backed the sweeping financial reforms and tougher bank regulation contained in the Dodd-Frank act, while Romney has talked about repealing it.
"It's important to just get the rules done and get the standards in place," Bair said. "We have a resilient system. I think banks can deal with whatever the rules are, but we need to get the rules finalized."
Whoever wins will also have some sway over monetary policy, even though the Federal Reserve is theoretically independent from the government. A Romney victory would put the status of Federal Reserve Chairman Ben Bernanke in doubt.
Romney has said he would replace Bernanke, whose dovish monetary policy has been a helped propel the gains in both U.S. bond and stock prices in recent years.
A Romney victory may increase interest-rate volatility, said Tom Sowanick, co-president and chief investment officer at OmniVest Group LLC in Princeton, New Jersey. On the other hand, if Obama gets four more years in the White House the current policy of quantitative easing may accelerate, Sowanick said.
Investors might want to watch gold prices, which "should reflect new policies more decisively than other assets," said Matthew Rubin, head of investment strategy at Neuberger Berman.
An Obama win would likely lift gold amid fears that more easy Fed policy could spur inflation, he said, while gold prices would probably fall sharply if Romney were to prevail. Gold jumped nearly 2 percent to more than $1,700 an ounce on Tuesday as traders bet Obama would win a second term.
Unlike in 2000, Ohio instead of Florida is expected to be the proving ground for taking the White House. At issue is whether the Obama administration's bailout of the auto industry will carry the day or whether Romney will maximize turnout in the Ohio suburbs.
BIGGER IMPACT IF ROMNEY WINS
Many believe a larger move in the market could come as a result of a Romney win. "I think the market is expecting an Obama victory, so I think the most important thing is that you don't get much of a response if you have an Obama victory," Jonathan Golub, chief U.S. equity strategist at UBS Securities, told Reuters.
The benchmark S&P 500 has rallied 67 percent since Obama took office - one of the most impressive runs ever for stocks under a single president.
"Interestingly, there has been a big divergence in the performance of stocks in the United States versus overseas since the 2010 midterm elections," according to Bespoke Investment Group analysts. "Stocks in the United States are up 15-20 percent since then, while the rest of the world is pretty much down across the board."
Heavy betting has been seen in the options market so far this week on stocks that would specifically benefit from either an Obama or Romney win, such as health care and energy shares. Several different stocks are expected to show large moves in coming days, according to JP Morgan derivatives strategist Marko Kolanovic.
Those include shares like Aetna and United Healthcare, which would be expected to do well under Obama, and Arch Coal, one of the coal shares that could benefit under a Romney administration. Coal stocks were strong Tuesday, with Arch Coal gaining 3.8 percent, a sign of speculation among some thinking Romney could win.
Investors believe coal and defense shares would benefit from Romney winning, while health care and alternative energy would do well under Obama.
Despite a downgrade of the U.S. credit rating from the Standard & Poor's agency in August 2011, yields on the benchmark 10-year Treasury note hit historic lows last July. Cumulative returns for all maturities on all U.S. Treasuries are at 14 percent since the president's inauguration, according to data from Barclays.
(Additional reporting by Tim McLaughlin in Boston, Atossa Abrahamian, Richard Leong, Nadia Damouni and Jennifer Ablan in New York, Doris Frankel in Chicago and Claire Sibonney in Toronto; editing by Lisa Von Ahn, Prudence Crowther, Andrew Hay and Leslie Gevirtz)