As the historic 2016 U.S. presidential election approaches, major Wall Street analysts agree that the S&P 500 will likely sell off if Donald Trump wins, and at least hold gains if Hillary Clinton wins.
The consensus view is that Clinton does prevail, but analysts are concerned that the final election result may drag beyond Tuesday night in a tight or contested race.
And there is always the possibility that the Street gets the election wrong, just as traders did not expect the U.K. to vote to leave the European Union in June. The S&P 500 fell 5 percent after "Brexit" before recovering.
The S&P 500 closed at 2,085.18 on Friday, posting a nine-day losing streak for the first time since 1980 as the race between Trump and Clinton appeared to tighten. The index fell about 3 percent over that time.
Here's what the major banks are predicting for markets after the election:
If Clinton wins, the S&P 500 should recover about 3 percent to 2,150 and European and emerging market stocks should rise 3 to 4 percent, Mislav Matejka and other JPMorgan analysts said in a Monday note.
They agreed with the consensus view that a Clinton victory remains more likely than a Trump win. "We believe that if Trump wins, markets are likely to fall further — one should not use the Brexit template where stocks bounced quickly," the note said, referring to the rebound shares made shortly after the United Kingdom voted to leave the EU.
Source: JPMorgan US Equity Research
"Our central election expectation continues to be that Sec. Clinton wins the White House, with a slim Democratic majority in the Senate — quite possibly a 50-50 split with the vice president breaking the tie — and a somewhat smaller Republican majority in the House than the 246 seats they currently hold," Goldman economist Alec Phillips said in a Monday note, which did not provide expectations on the market reaction to an election outcome.
"With tight polling in several states, it looks quite possible that a final outcome in the presidential race might not become clear until early on November 9," the note said. "The same holds true in the Senate races, where a delayed outcome in one seat could keep either party from winning an outright majority on election night."
The S&P 500 could potentially fall 11 to 13 percent if Trump wins the election, Keith Parker, global equity strategist, said in a Nov. 1 note. If Clinton wins, the index could rise 2 to 3 percent.
"We see the U.S. election as first: a risk-off/on event initially that has the greatest effect on equities/rates given the uncertainty," he said. "Second, a macro event that (affects) currencies and to a lesser extent commodities; lastly, a micro event that (affects) a number of industries but one that will play out over time as agendas are implemented."
After the Oct. 28 market reaction to news about a new FBI probe into Clinton's emails, Barclays found that health care could underperform by 2 to 3 percent if Clinton wins.
Other notable stock reactions that day included weakness in trade-related equities such as railroads, trucking and air freight, particularly railroad Kansas City Southern, which Barclays said has the highest sales to Mexico in the S&P.
"The tail risks of a Trump victory or a Democratic 'sweep' could result in a market correction in the 5 percent range (similar to Brexit), after which the investment community reassess the environment," Chief U.S. Equity Strategist Tobias Levkovich said in a Nov. 3 note.
Regardless of which candidate wins, Levkovich expects consumer discretionary, energy, financials — especially regional banks — and technology stocks to generally perform well. Materials and real estate should also do well if Trump prevails, according to Levkovich's analysis.
Notes: 1) Multinational trade issues 2) Defense budget trade impact 3) Clinton does not have a real estate background 4) Environmental issues.
Source: Citi Research - US Equity Strategy
However, more market weakness could arise if no candidate gets the needed 270 electoral college votes or if Clinton wins and Trump does not concede, Levkovich said in the note.
The S&P 500 fell more than 5 percent from election day on Nov. 7, 2000, to the Supreme Court decision on Dec. 12 that year deciding a contested vote in George W. Bush's favor.
"The worst-case scenario is we don't have decision on Tuesday," said Brian Belski, chief investment strategist at BMO Capital Markets.
He said a Trump win would likely result in "jittery" markets, and while markets would likely be "happy" with a Clinton victory, questions around the political implications of the election for markets would linger for several months.
Note: R: Republican, D: Democrat.
Source: BMO Investment Strategy Group.