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Stocks will drop ‘no matter who wins’ the election, strategists predict

As America heads to the polls, Wall Street appears to be hitting the "buy" button.

The S&P 500 is following up a 2.2 percent rally on Monday with a 0.5 percent gain on Tuesday. If the market closes at the level at which it finds itself after three hours of trading, then the market will have logged its best two-session stretch since the post-Brexit bounce at the end of June.

Notably, this two-day bounce follows a nine-session losing streak for the S&P — the longest such run since 1980.

The sharp turnabout appears to be driven by traders' rising perceptions that Hillary Clinton will win the election. Among traders and financial strategists, Donald Trump is widely seen as a wildcard whose victory would lead to more uncertainty for the market.

Still, some say that the initial move should be faded, whatever it happens to be.

"A Hillary Clinton win gets you a slam dunk rally to be sold, a Trump win gets you a 10-15 percent plunge which should be bought," Larry McDonald of ACG Analytics wrote in a Tuesday note.


Voters head to the polls during the U.S. presidential election in St. Petersburg, Florida, November 8, 2016.
Scott Audette | Reuters
Voters head to the polls during the U.S. presidential election in St. Petersburg, Florida, November 8, 2016.

On the other hand, Miller Tabak equity strategist Matt Maley says that the entire bounce that had been expected on a Clinton victory may have already happened.

"It seems like we're setting up for a 'buy the rumor, sell the news' reaction," Maley wrote in a Tuesday afternoon note. This means that, like McDonald, he sees the outcome as a bit of a lose-lose situation.

"The market should now pull back no matter who wins ... it will just pull back more if Trump wins."

In another notable Tuesday move, the Mexican peso is rising sharply against the dollar. This currency pair has been closely watched for indications of Trump's chances, given that a core of the Republican candidate's platform is the restriction of international trade — a policy that could be expected to hurt the Mexican economy.

As a Clinton win has appeared to increase in probability, expectations for the size of the market's moves this week have fallen. Option prices currently show that the market is expected to move about 2 percent through Friday's close.

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