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Market is overestimating odds of a decisive election, BTIG's Julian Emanuel warns

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Volatility could make an ugly comeback, market strategist Julian Emanuel warns

BTIG's Julian Emanuel is bracing for market upheaval.

The firm's chief equity and derivatives strategist warns the latest rally is built on a flawed assumption there will be a decisive winner in the presidential election.

"The problem that we have is that you've run 5% in literally a straight line since the lows on Friday," he told CNBC's "Trading Nation" on Tuesday. "That's discounting right now a degree of certainty which we're not entirely sure we're going to see over the next several days."

Emanuel's base case is an official tally could take weeks to months due to the sheer volume of ballots.

His call comes as the S&P 500 logged its second-best presidential Election Day rally in history. It closed up 1.8% to 3,369. The Dow did even better. It rallied 2.1% to close at 27,480.

Emanuel warns the gains are in jeopardy. If there's no official winner this week, he anticipates the S&P would at the minimum drop to early September lows.

"A test of the 200-day moving average, which we haven't seen in a number of months down to 3,130, is not out of the realm of possibility," he added.

But there's a silver lining to Emanuel's forecast. It's not influencing his bullish case for 2021, which depends almost entirely on expectations of a massive coronavirus aid package and barely on who's in the White House.

"The potential for stimulus once we have a set political structure is quite high," he said.

According to Emanuel, an accelerating number of coronavirus cases will create an urgency among politicians to go even bigger than prior estimates by the first quarter of next year.

"Set against potential for an earnings rebound and set against the potential for medical advances with a Fed that stays easy — that spells upside for us," Emanuel said.

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Market is overconfident about an election outcome, BTIG's Julian Emanuel warns