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.