Stocks posted a big election day gain, fueled by relief the uncertainty around the presidential election will end—but also on sprigs of hope that Mitt Romney might win.
"The uncertainty is over. We love to rally on election day. We've done it in the past," said Daniel Clifton, head of policy research at Strategas. "But in the sector side, you see the hospitals selling off and you see all the Republican sectors pretty much up and people are making a bet."
Clifton said he expects Obama to win but there's chatter on the Internet and rumors are flying that the GOP challenger is doing better than expected.
"My Republican portfolio is through the roof right now," said Clifton. "It's running on rumors. Nothing has changed. There's no new data."
The market closed sharply higher, with the Dow Industrials up more than one percent. (Read More: Stocks End Higher on Election Day)
Before the close, traders pointed to an early headline from the Cincinnati Enquirer, later retracted, that showed Romney making early gains in the key battleground state. But the paper said the information was erroneous and it had mistakenly released a template, loaded with dummy data.
"We have nine polls in Ohio. Obama is winning in eight of those nine. The other one is tied," Clifton said. "There could be something wrong with a poll or several polls but when I get nine of them and I put them together, it reduces the chance for error." (Read More: How to Tell Who's Winning the Election, State by State)
Traders pointed to HCA, the hospital company, which was losing ground and would be hurt if Obama's healthcare legislation was overturned. On the reverse side, HMO stocks like UnitedHealth and Aetna were higher. They would benefit from reversal of the legislation, which Romney has vowed. Coal stocks, which would do better with Romney were also higher.
CNBC's candidate portfolios showed the same trend Tuesday. A group of stocks that could benefit from a Romney presidency were outperforming, up 1.5 percent Tuesday. The Obama portfolio was down 0.1 percent.
Since the beginning of the year, the Obama stocks are up about 20 percent and Romney stocks are up 2.5 percent for the year. Since the first debate, where Obama performed poorly, the Romney portfolio gained 2.6 percent, and the Obama portfolio has gained just 0.01 percent.
Miller Tabak strategist Peter Boockvar said the election is the big event markets have been waiting for. "The market is a coiled spring one way or the other. I'm inclined to think tomorrow gets a binary response. If Romney wins, it goes up. It goes down if Obama wins."
Boockvar said investors who have been piling into dividend paying stocks may start to pare back and also take gains, since both dividend and capital gains taxes could go up if Obama stays in the White House and the Democrats hold a majority in the Senate, as expected.
"It was just as likely to be the case it appears that we would have a decision, know we know who the president is going to move the market anyway," said Art Hogan of Lazard Capital Partners.
Traders said there was a lot of short covering going on, and there is some belief that the polls are unfairly skewing toward Obama. The demographic of voters has changed in four years, and some of the voters, such as young voters, that were there last time, may not turn out for Obama, he said.
"The conventional wisdom is Obama will win," said a trader, who was personally taking the other side. He said that erroneous Ohio newspaper headline got things rolling. "There's a lot of itchy trigger fingers, and people were short," he said.
The Dow on five of the last six presidential election days moved less than a percent. On the last election day, when Obama was elected, the Dow gained 3.3 percent, its biggest election day move since 1932 when Franklin Roosevelt defeated Herbert Hoover, and the Dow rose 3.5 percent.
Two of the next biggest moves on the last 20 presidential election dates were the Reagan years. In 1980 when Reagan defeated Jimmy Carter, the Dow rose 1.4 percent, and it rose 1.2 percent the day he was re-elected in 1984.
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