U.S. stocks surged on Tuesday as voters headed to the polls on Election Day, reflecting market optimism and hopes for a positive outcome in the election amid strong trading activity.

The Dow Jones Industrial Average rose 427.28 points, or 1.02 percent, to 42,221.88. The S&P 500 added 70.07 points, or 1.23 percent, to 5,782.76. The Nasdaq Composite Index increased 259.19 points, or 1.43 percent, to 18,439.17.

All of the 11 primary S&P 500 sectors ended in green, with consumer discretionary and industrials leading the gainers by adding 1.83 percent and 1.67 percent, respectively. Materials posted the weakest growth, up by 0.20 percent.

The presidential race between U.S. Vice President Kamala Harris and former President Donald Trump has great implications for U.S. stock markets in the coming years.

Still, market players have different interpretations of the rally on Tuesday in regard to the 2024 general election.

"I think it's been betting on a Trump victory. I think that's why you've seen today is such a strong move," said Timothy Anderson, managing director with MND Partners, division of TJM Investments, LLC.

Market participants have also been following betting markets and Trump's chance of winning the presidential election topped 60 percent on the betting market, Anderson told Xinhua on the trading floor of the New York Stock Exchange.

"My feel is clearly projecting the strong likelihood of a Trump win," said Anderson.

The cause of Tuesday's rally could be "that they are feeling that today the poll is showing that Kamala is going to win. I think that's where the rally comes from, but what we won't know till tomorrow," said Peter Tuchman, senior equity floor broker with TradeMas Inc.

Tuchman told Xinhua that the market rally in the last four years is a function of the current administration though some Trump followers believe the rally in last month is a function of the atmosphere of a Trump win.

As Americans head to the polls in a closely contested presidential race between Harris and Trump, investors are preparing for potential market volatility, especially given the possibility of delays or disputes in determining the final outcome.

"There's been a lot of hedging against potential uncertainty, potential drama out of Washington. We've seen that. And now as we're at Election Day, we kind of are optimistic that maybe some of that can unwind," said Ryan Detrick, chief market strategist at Carson Group.

If Trump prevails in the presidential election, that could cause a dislocation in the market as he is seen as a wild card, said Tuchman.

Tuchman noted that there's plenty of uncertainty around the election and it's not reflected in the market.

The market is above this sentiment around politics and it's never been a big factor, added Tuchman.

"If it becomes a very, very contested election that gets dragged out in the legal system for a couple of weeks. I think the market would not like that... that would be one downside risk," said Anderson.

Anderson added if Harris wins the election, a lot of this anticipation trade would have to get unwound and "you might have a 4 percent to 8 percent correction."

Beyond the election, the Federal Reserve's November policy decision is fast approaching, with Election Day adding another layer of significance. Fed Chair Jerome Powell is widely anticipated to announce a 25 basis point rate cut at the conclusion of the two-day meeting on Thursday.

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