The Dow Jones industrials rallied on Tuesday to their highest close since Oct. 6, and the S&P 500 crossed the 1,000 mark for the first time since Oct. 13. The three major U.S. stock indexes are all up around 18% from their closing low points on Oct. 27.
Chevron led the Dow higher after U.S. crude futures jumped $6.62, or 10.4%, to settle at $70.53 a barrel on signals that OPEC members were cutting output to comply with the group's recent decision. A sinking dollar helped send oil prices higher, too.
More signs of thawing credit markets prompted investors to snap up shares at multi-year lows. The interest rates banks charge each other for short-term loans fell again, providing further hope that measures to shore up the credit markets are taking hold.
But the presidential election was first and foremost on investors' minds.
It was the biggest Election Day rally ever for the Dow Jones industrials, which rose 3.28% and topped the 1.2% gain seen in 1984 when Ronald Reagan defeated Walter Mondale. Prior to 1980, the market was closed on Election Day.
Some analysts said the market rose on relief that the presidential election was about to be decided. But others said investors were anticipating a year-end recovery from Wall Street's huge sell-off and bought to be sure they didn't miss out on its start.
"I seriously doubt it has much to do with the election, other than we're all looking forward to it being over," said independent investment strategist Edward Yardeni.
The fact that Wall Street is in the final stretch of a tough year is probably lifting stocks more than the elections, he said. "It's almost been a classic textbook crash in September and October followed by a year-end rally."
Steven Goldman, chief market strategist at Weeden & Co., said, "historically, we were at the most oversold levels since October 1974."
"We've come to levels that would tend to discount a lot of bad news," he said.
The declines in valuations are overblown, legendary investor and Vanguard Group founder John Bogle said Tuesday.
"The value of the U.S. stock market was $18 trillion a year ago. And now it's about $9.5 trillion or let's call it $10 trillion with today's rally. Anyone who believes that American business is worth $8 trillion less than it was a year ago I think is a fool," he told Reuters in a telephone interview.
"So there was some water in the system, some hot air in the system, and we blew it out but I think we have overblown it," he said.
There's still a feeling the market might fall back and retest the trading lows reached Oct. 10 before entering a true bull market. But it's possible that the retrenchment won't happen until 2009 — in similar oversold markets in 1974 and 2002, Goldman said, the return to the lows of the bear market did not happen until two months later.
Analysts predict stocks are headed for a recovery no matter who is elected, as the policies of both John McCain and Barack Obama likely will be guided by the weak economy and the recent flood of government support designed to keep the global financial system from collapsing.
The market again looked past a downbeat economic report, as it did on Monday, when investors calmly received a report of a big slowdown in manufacturing before the Dow finished essentially flat.
The Commerce Department said Tuesday that factory orders fell 2.5% in September from August, much worse than the 0.7% drop analysts predicted. But investors generally expect data from September, and even October, to be extremely weak, as credit markets began to seize up in mid-September. Analysts believe much of the bad news is already factored into stock prices; last week saw the Dow rise 11.3% — its best weekly gain in 34 years.
"The risk of a depression is off the table," said Ben Halliburton, chief investment officer of Tradition Capital Management.
Still, some analysts say the market's gains might not be sustainable. Though the uncertainty surrounding the election will be cleared, they said there are still many economic challenges, and some of the market volatility seen in October, in the weeks and months ahead.
"In the next couple of days, people are going to focus on the fact that we still have these issues," said Bernie McGinn, chief executive of McGinn Investment Management, referring to the worsening economy. "They aren't resolved."
The Dow rose 305.45, or 3.28%, to 9,625.28. The Dow last closed above 9,500 on Oct. 6, when it finished at 9,955.50.
The broader indexes also rose. The Standard & Poor's 500 index gained 39.45, or 4.08%, to 1,005.75. In the past six sessions, the S&P 500 has rallied 18.3%. That includes a 10.8% jump that occurred Oct. 28 after last month's steep sell-off.
The Nasdaq composite index rose 53.79, or 3.12%, to 1,780.12, its sixth straight advance and its longest winning streak of the year.
The Russell 2000 index of smaller companies rose 7.47, or 1.39%, to 545.97.
Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange, where volume came to a light 1.3 billion shares.
Energy and industrial stocks led the market higher, while health care names, often a defensive investment, showed more modest advances. ExxonMobil rose 4.3%, aluminum producer Alcoa rose 3.5% and Johnson & Johnson advanced 1.19%.
There were other signs of the market's growing confidence. Wall Street's fear gauge, the Chicago Board Options Exchange Volatility Index, known as the VIX, fell to 47.73, its lowest close since Oct. 3. The VIX normally trades below 30 and tracks options activity for the companies that make up the S&P 500; it closed as high as 80.06, on Oct. 27.
As they did Monday, investors have overlooked a spate of bad economic data recently, including the report Monday from the Institute for Supply Management that revealed the worst monthly contraction in manufacturing activity. Additionally, automakers reported the lowest level of U.S. car sales in more than 17 years. The market closed narrowly mixed in light trading Monday, with the Dow making just a single-digit point decline — something that has become unheard of in recent months in the midst of daily several hundred point swings.
"The economic activity in October is obviously very poor," said Halliburton, "and is going to have some very bad numbers reported, and I think that is going to continue in the fourth quarter." As such, investors have begun dipping their toes back in to the market to take advantage of some of the buying opportunities created by the violent swings last month.
The disruptions in the credit markets were at the heart of the recent market volatility, as the evaporation in lending made it difficult for businesses and consumers to get loans, and sparked widespread panic about the economy's ability to avoid a severe downturn. While lending has eased somewhat, analysts contend that the state of the credit markets will remain one of the biggest land mines in the weeks ahead.
The key bank-to-bank lending rate known as Libor fell to 2.71% from Monday's rate of 2.86% for three-month dollar loans. A fall in the London Interbank Offered Rate indicates that banks are more willing to lend to one another; a month ago, when the credit markets were paralyzed by banks' fear that they wouldn't be repaid on loans, it stood at 4.33%.
Investors' demand for short-term government debt remained high, however, a sign that they are still cautious and willing to take a very small return on their investments in exchange for security. The yield on the three-month Treasury bill, seen as one of the safest assets around, rose to 0.49% from 0.47% Monday. A low yield indicates high demand.
The yield on the benchmark 10-year Treasury note fell to 3.73% from 3.92% late Monday.
The dollar fell against most other major currencies, while gold prices rose.
Overseas, Japan's Nikkei index soared 6.27%, Hong Kong's Hang Seng Index edged up 0.28%. Britain's FTSE 100 rose 4.42%, Germany's DAX index jumped 5.00%, and France's CAC-40 advanced 4.62%.