NEW YORK, Nov 5—Stocks in New York ended sharply higher on Tuesday as a broad-based rally prevailed, driven by signals of an even more robust economy. Still, investors took precautions ahead of stormy weather this week for voting in a highly close US presidential race.

The Institute for Supply Management said its non-manufacturing purchasing managers index, one of the most important barometers of the services sector, rose to 56.0 in October, its highest since August 2022, from 54.9 in the previous month. That’s better than the forecast of economists polled by Reuters at 53.8. Although economic data is good, the election is still a matter of concern for market participants as the contest between Republican Donald Trump and Democrat Kamala Harris remains very tight. The outcome will likely take several days to materialize.

Market Mood Shifting To Trump

Betting markets-which investors frequently check an index-showed better odds for Trump on Tuesday, reflecting shifting expectations. Rob Haworth, the senior investment strategist at US Bank Wealth Management in Seattle, said, “The market continues to try and price for the outcome of this election. 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, so what’s moving us is marginal positioning for one result or the other.”

As Haworth suggests, a divided government is primarily composed of base cases. He said, “Most base cases are for divided government, but this election is so close we could get any outcome. That’s the challenge.”

Stock Market Performance

Preliminary figures showed the S&P 500 rose 70.42 points or 1.23 percent to close at 5,783.11 points. The Nasdaq Composite gained 259.19 points or 1.43 percent to close at 18,439.17, and the Dow Jones Industrial Average surged 431.42 points or 1.04 percent to 42,227.74.

Bonds and Currencies Experience Higher Volatility

Volatility in government debt and currency markets was more pronounced. The benchmark 10-year US Treasury note yield leaped to its high at 4.366% based on the curve inversion by more than ten basis points but then pared some of those gains after a strong auction. It finished the day modestly lower. Equities were less volatile than on Monday and took comfort from a view of a soft landing driven by corporate earnings, falling interest rates, and a strong labor market.

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Trade Deficit and Economic Impact

Other economic figures showed the trade gap in the United States expanded to a 2-1/2-year high in September while imports rose, mainly due to strong domestic demand. Companies have been stocking up for imports before more tariff increases under a probable President Trump.

The CBOE Volatility Index, known as Wall Street’s “Fear Gauge,” remained slightly above its long-term average of 19.46, though it had eased from a near two-month high of 23.42 hit last week.

Sector Performance and Election-Linked Stocks

Industrials and Consumer Discretionary headed the S&P 500 higher, and stocks tied to Trump’s potential win churned. Trump Media & Technology Group Shares surged to as high as 18.64% before ending at 8.42% with volatility stops.

Crypto and Tech Stocks Advance

In cryptocurrency, stocks tied to bitcoin moved in line with that cryptocurrency’s gain of about 4% as Trump has backed the sector. Data analytics company Palantir reached its all-time high after a third increase in the third-quarter revenue estimate.

Federal Reserve Policy Announcement Due

Investors are also looking towards Thursday’s Federal Reserve policy statement. Almost all interest-rate cuts priced at 25 basis points have locked in, but the remainder are much less specific, given that the US economy still grows well enough.