"If we were to go in 70/30 [for Clinton], and we think the market is 10 percent higher under Clinton than Trump, if Clinton wins it should be up about 3 percent and if Trump wins, it should go down 7 percent," said Eric Zitzewitz, economics professor at Dartmouth College. He and Justin Wolfers of the University of Michigan studied the market effect of the first debate in a Brookings paper. Clinton's odds in the prediction markets had been closer to 80 percent, and at that level, a Trump victory would have triggered an 8 to 10 percent sell-off, he said.
The market's nervousness picked up after the FBI last Friday revealed a new investigation into Clinton's email server, this time involving her longtime aide Huma Abedin and her husband Anthony Weiner, who is under federal investigation in a different matter.
"There's no question in my mind that the markets have not priced in a Trump win, only in the most cursory way. They are starting to price in the potential for a Trump win. That process started last Friday," said Tony Roth, CIO of Wilmington Trust. "We haven't seen an up day in the markets since then. We haven't seen any calamitous days either."
Strategists agree there would be a sell-off with a Trump win, but then the views diverge on how the market would trade after that.
Ethan Harris, head of global economics at Bank of America Merrill Lynch, said he would expect a sell-off if Trump wins, then an L-shaped move in the equity market, because of the period of policy uncertainty. "From the action in the stock market, the equity market is worried about a Trump victory, about the uncertainty of policy under Trump. Normally the equity market responds positively to a Republican doing well in the election," he said. "In this election, I think the dominant story is about uncertainty after the election, and a status quo election means no shock, everything is the same, no big news and presumably the equity market sails through the election if it's a split government."
Markets had been looking for a win by Clinton but also Republicans holding the House and possibly Senate. The idea is that that would create gridlock and many of her policies could not be enacted.
"Under a Trump victory, you probably get some kind of reaction in the equity market, and if it's a strong reaction, it could affect the Fed," he said. Harris said he would expect to modestly lower his GDP forecast if Trump wins. "To a large degree, we're going to look at the market's response as a gauge of the underlying uncertainty shock," Harris said.