By Chuck Mikolajczak

NEW YORK (Reuters) -U.S. stocks advanced in a broad rally on Tuesday after data signaled a solid economy, but investors braced for volatile trading this week as voting began in an extremely tight U.S. 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 U.S. 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.”

The Dow Jones Industrial Average rose 382.09 points, or 0.91%, to 42,176.69, the S&P 500 gained 59.65 points, or 1.04%, at 5,772.34 and the Nasdaq Composite advanced 232.84 points, or 1.28%, to 18,412.82.

Volatility was more pronounced in government debt and currency markets. The benchmark 10-year U.S. Treasury note yield pared gains after a solid auction lifted it to a high of 4.366%.

Equity markets avoided the volatility of Monday on expectations of a soft landing for the economy, bolstered by corporate earnings, lower interest rates and a resilient labor market.

Still, the CBOE Volatility Index, also known as Wall Street’s “Fear Gauge,” at 20.63 was slightly higher than its long-term average of 19.46, although it had eased from a near-two month high hit last week of 23.42.

All 11 S&P 500 sectors climbed, with industrials, consumer discretionary and tech each up more than 1%.

Investors are also keeping an eye on Congressional elections to determine the balance of power in Washington. Many analysts predict a split government, which would limit the ability of the president to enact significant policy changes. 

Stocks viewed as proxies on a win for the former president jumped, with Trump Media & Technology Group surging more than 10% and prison operator Geo Group gaining about 6%.

Crypto stocks tracked bitcoin higher, with the cryptocurrency up roughly 4%, as Trump has positioned himself as friendly to the sector.

Palantir soared more than 23% to a record high after the data analytics firm raised its annual revenue forecast for the third time.

Shares of Boeing, which had risen in premarket trade following the end of a prolonged workers’ strike, fell 2.1% in choppy trade.

The Federal Reserve will announce its latest policy statement on Thursday. Markets have almost completely priced in a 25-basis point interest rate cut, but the outlook for the path of future easing is less certain given the economic strength. 

Advancing issues outnumbered decliners by a 3.31-to-1 ratio on the NYSE and by a 2.41-to-1 ratio on the Nasdaq.

The S&P 500 posted 23 new 52-week highs and seven new lows while the Nasdaq Composite recorded 92 new highs and 100 new lows.

(Reporting by Chuck Mikolajczak; Editing by Richard Chang)

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