Stocks climbed on Tuesday, the last day of trading before the election results came to a close, as investors looked forward to a resolution to the drawn-out race for the White House.
The rally defied a string of weaker-than expected results from U.S. companies and was attributed in part to expectations that a victor in the presidential race would be known late Tuesday or early Wednesday, despite some fears that have nagged markets recently that the outcome could remain up in the air for days.
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"The market just wants to wake up tomorrow and know for sure that there's a winner," said Linda Duessel, senior equity strategist at Federated Investors.
In trading on the last seven presidential election days, going back to 1984, the S&P 500 has averaged a gain of 0.85 percent, according to Bespoke Investment Group of Harrison, New York. Tuesday's gain of 0.79 falls pretty squarely in the realm of expected performance for the market.
Democratic President Barack Obama is favored by a small margin in national polls against Republican challenger Mitt Romney. There was notable strength on Tuesday in stocks and sectors that are seen as favorable if Romney wins, including coal, energy and defense shares.
But with volume again below average, moves in those sectors could have been inflated. The S&P energy sector was up 1.56 percent. Planemaker Boeing jumped 2.3 percent to $72.02, in part on speculation that Romney could come out on top.
Heavy betting was seen in the options market on stocks that could have benefit specifically from either an Obama or a Romney win, such as health care and energy shares.
Several stocks were expected to show large moves in coming days, according to JP Morgan derivatives strategist Marko Kolanovic. Those include health insurers 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. United rose 2 percent and Arch Coal gained 3.8 percent.
"People are betting on the results. It's basically speculation with no volume," said Joe Gordon, managing partner of Gordon Asset Management in Durham, North Carolina.
"There's still a chance that we'll have a 2000-style scenario and won't know the election outcome for a month, or way past tomorrow at least," Gordon said. "And I think that's priced into the market."
In 2000, Republican George W. Bush won in his race against Democratic Vice President Al Gore after recounts and a legal battle over contested votes.
The results of this year's presidential and congressional elections will play a crucial role in how disagreements over spending, taxes, healthcare and other policies are dealt with through 2016.
The U.S. fiscal cliff, the $600 billion in spending cuts and tax increases that are set to expire at end of the year, has been weighing on the market for months. It threatens to bring on another recession unless the budget is successfully renegotiated.
"The market knows that no matter who wins, the fiscal cliff is here and won't go away regardless of who's elected," said Gordon.
The Dow Jones industrial average was up 133.08 points, or 1.02 percent, at 13,245.52. The Standard & Poor's 500 Index was up 11.09 points, or 0.79 percent, at 1,428.35. The Nasdaq Composite Index was up 12.27 points, or 0.41 percent, at 3,011.93.
Computer Sciences Corp jumped 17 percent to $36.80 after the U.S. technology services provider posted a second-quarter profit that blew past estimates as the company halved costs.
Shares of AOL Inc jumped 22 percent to $43.70 after it reported higher-than-expected revenue and profit on the strongest advertising growth the Internet company has seen in seven years.
S&P 500 earnings were estimated down 0.6 percent for the third quarter from a year ago, according to Thomson Reuters data.
(Reporting By Atossa Araxia Abrahamian; Additional reporting by Caroline Valetkevitch; Editing by Leslie Adler)