Markets pop ahead of election results on solid service sector data

Stocks closed sharply higher Tuesday as activity in the U.S. services sector jumped to a more than two-year high, displaying underlying strength in the economy as voters headed to the polls.

The Dow Jones Industrial Average of major U.S. companies gained more than 1 percent to close at 42,221 in Tuesday trading. The technology-heavy Nasdaq composite gained 1.43 percent, and the S&P 500 index gained 1.23 percent.

The Institute for Supply Management (ISM) reported that its purchasing managers index (PMI) for the service sector increased for the fourth straight month to a level of 56.0, the highest mark since August 2022. 

The October services PMI from S&P Global was similarly robust, staying in expansionary territory at an index level of 55.0, a slight downtick from the September reading of 55.2. Services activity in that measurement has increased for the past 21 months, the company said.

The strong numbers follow an unexpected stalling out in the October jobs report from the Labor Department, which showed the economy adding just 12,000 jobs last month with the unemployment rate holding steady at 4.1 percent. 

That number was likely dragged lower by the effects of hurricanes Helene and Milton as well as some high-profile labor actions.

The strength in the service sector bodes well for the fourth-quarter performance of the economy. U.S. gross domestic product (GDP) came in at a healthy 3 percent in the third quarter, as reported by the Commerce Department.

Despite the robust data, analysts noted that worries about political uncertainty amid a neck-and-neck presidential race were weighing on professionals in the service sector.

“Concerns over political uncertainty were again more prevalent than the previous month,” ISM chair Steve Miller said in a statement. “Impacts from hurricanes and ports labor turbulence were mentioned frequently, although several panelists mentioned that the longshoremen’s strike had less of an impact than feared due to its short duration.”

One ISM survey respondent in the utilities sector described business as “booming.”

“Business is booming, nothing slowing down. Prices continue to increase slightly,” the person said.

A recent survey of executive sentiment from accounting firm PwC found that 61 percent of business leaders expect an economic downturn on a 6-month time horizon.