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US stocks rally as investors brace for presidential election outcome

By Nicole Goodkind, CNN

New York (CNN) — US stocks rallied Tuesday as Wall Street awaited the results of a closely contested presidential race.

The Dow closed 425 points, or 1% higher; the S&P 500 gained 1.2%; and the tech-heavy Nasdaq climbed 1.4%, all underscoring investor optimism as Americans cast their ballots.

Market futures continued their upward ascent in after-hours trading, with all three major indexes rising tepidly.

“The market appears to be in an anticipatory relief rally now that the election is here,” said Louis Navellier of Navellier & Associates in a note to investors Tuesday. “While it’s still anyone’s call on where the chips will fall on the election, putting it behind in either direction is a relief.”

Historically, stocks have often risen on Election Day. This marks the sixth-straight Election Day gain for the S&P 500 and Nasdaq.

Yet, with the race between Vice President Kamala Harris and former President Donald Trump exceptionally tight, economists warn of potential volatility ahead, especially if results take days — or even weeks — to finalize. In 2020, it took several days to declare Joe Biden the winner, while the 2000 election between George W. Bush and Al Gore famously dragged on for more than a month.

The prospect of a delayed or contested result could amplify market swings.

“With Election Day finally here, expect more market volatility, particularly if the wait for a result is long or contested. Political divisiveness presents a risk to investor sentiment,” said Adam Turnquist, chief technical strategist for LPL Financial.

“Though having gone through the ‘hanging chads’ of the Bush vs. Gore election in 2000, legal challenges, recounts, and the January 6 experience, perhaps markets are battle-tested for election chaos,” Turnquist added.

As results begin to pour in, sectors of the market could react differently based on the leading candidate. A Harris lead could drive gains in green energy and manufacturing stocks, given expected pushes for infrastructure spending, clean energy and social programs. However, tech and finance may face greater regulatory scrutiny. A Trump lead would favor energy, finance and industrial sectors, with investors anticipating continued tax cuts and a lenient regulatory stance, said Turnquist.

Still, stocks have historically movef higher in the months after elections regardless of the result. “Most stock price movements over time are driven by earnings, inflation, and interest rates. Policy does matter, particularly tax and trade policy, but not as much as some might think,” said Turnquist.

Traders are bracing for a turbulent week. Just two days after Election Day, the Federal Reserve will announce its latest interest rate decision, the first since cutting rates by half a point. The Fed’s announcement comes amid new data showing signs of a cooling labor market, adding another layer to an already stacked week for markets.

This story is developing and will be updated.

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