US stocks have closed sharply higher in a broad rally after data signaled a solid economy, but investors braced for volatile trading this week as voting began in an extremely tight US presidential election.
The Institute for Supply Management said its non-manufacturing purchasing managers index, a gauge of the services sector, accelerated to 56.0 last month, its highest since August 2022, from 54.9 the prior month and above the 53.8 expected by economists polled by Reuters.
The election outcome could take days to be finalized as the latest polls showed the race between Republican Donald Trump and Democrat Kamala Harris, which has moved markets in recent months, was too close to call.
The former president’s odds improved on Tuesday in betting markets that many investors consider as election indicators.
“The market continues to try and price for what is the outcome of this election,” said Rob Haworth, senior investment strategist at US Bank Wealth Management in Seattle.
“It’s been so tight and even if we look at the price range we’ve been in, we’ve been in a tight price range, and so what’s really moving us is marginal positioning for one result or the other.
“Both the bond market and the equity market are looking at Congress as important as well,” he added. “Most base cases are for divided government, but this election is so close we could get any outcome, that’s the challenge.”
Volatility was more pronounced in government debt and currency markets. The benchmark 10-year US Treasury note yield rose more than 10 basis points to a high of 4.366% before paring gains on a solid auction, and was last down slightly on the day.
Equity markets avoided Monday’s volatility on expectations of a soft landing for the economy, bolstered by corporate earnings, lower interest rates and a resilient labor market.
Other economic data on Tuesday showed the trade deficit hit a 2-1/2 year high in September, as domestic demand draws in imports while concerns about higher tariffs under a Trump presidency have led to a front loading of imports by businesses.
