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as we count down to the election our next guest is laying out the three big market scenarios that could play out based off tomorrow's results let's trade the vote with tom lee head of research at fundstruck global advisors tom great to have you with us let's uh start off with the base case scenario which is a blue wave that's right and uh heading into election day you know we're making the assumption that investors aren't a buyer strike so it's been an emotional two weeks retail investor cash has actually risen so we know people are just waiting for some certainty and the base case in our view is is a blue wave it's reflected from the polls and from the betting markets and while i've heard what you guys have talked about i think that this results in a 10 rally in equities so s p roughly 3 600 because you're going to get a pretty big lift in cyclicals based on fiscal stimulus the fed's staying easy and just a relief rally i think that's offset somewhat by tech potentially trailing because of the risk of both increased regulation and higher taxes okay so that's the base case the other scenario would basically be status quo correct uh yes so i think that the surprise case uh would be that trump is re-elected and the senate remains republican and and the reason it's a surprise is of course because the polling markets aren't reflecting this and the betting markets are showing trump as an underdog but the reason i i think that this is actually a positive surprise i think the stock market might rally 15 to 17 so something like s p 3700 and the reason for that is we've got the possibility of less regulatory risk like less regulation creep we're going to have less risk of lockdowns because of the current administration's approach and we have the possibility of a tax cut so i think you're going to get a big cyclical rally plus tech keeps running and that extra tech juice is how you get to 3 700 on the s p okay and the third scenario is some form of contested election yes and so a contested election and i i've heard you guys say that uh it's uncertainty and i agree it's uncertainty but it's a it's actually less uncertainty so incrementally it's certain because now we're through the election night and the reason i think you still get a five to seven percent rally which is s p 3500 is number one i think washington goes back to two things you know focus on what's who's controlling the senate but we're also likely to get fiscal stimulus passed before your end and the fed is likely going to make some intervention or announce some intervention or prepare to announce intervention if the markets are unstable so i think the market still gets a lift and 3 500 is just taking us to sort of that two weeks before election day so basically all the scenarios that you outlined tom the markets will be higher is that right that doesn't sound right to me it's a win-win-win no matter what yes and the reason i'm pointing that out is we've gone through an excruciating two weeks where the markets lost nearly 10 percent because nobody rationally was buying equities but we've had a lot of selling and repositioning so part of our presumption is we've had a huge imbalance we've had sellers for two weeks we're down eight percent cash is original on the sidelines as guy pointed out the vix has gone to levels of you know very high levels of anxiety and a drop in the vix plus moving cash off the sidelines is still going to get us to rally so i'm glad you mentioned that because that's sort of my question i guess in my opinion the concession speech either way takes the vix from today's close of 39 down to the low 30s if not the high 20s but does does a con have we already priced in with a 39 vix a contested election is that sort of your point the entire negative scenario is somewhat priced in vis-a-vis the vix uh i believe so i mean i'm going to make an assumption here but the our active ex institutional equity investors have done a lot of hedging either in the derivatives markets or the futures so they they have not bet on uh this two weeks being smooth you know they've been on a lot of turbulence so that is going to be repositioning post uh election and then on the retail investor side i think that's why the cash balances have actually been creeping up for the last three or four weeks so investors are essentially on the sidelines because they are better prepared for a contested election so a concession you know a clear outcome would be a massive bullish signal tom great to speak with you thanks thanks tom lee of funstrat and uh by the way cnbc will have full team coverage of tomorrow night's election starting at 7 p.m eastern and going throughout the entire night all the way through squawk box so you won't want to miss that um let's let's trade this tim i noticed that you were sort of smirking when tom outlined the three winning scenarios because every scenario is a winning scenario for the s p apparently well never smirking at tom um tom tom is certainly taking a glass half full approach to three scenarios that that that you know i i think the the market has a lot of anxiety yes uh but the market has reason for a lot of anxiety and a lot of dysfunction and and valuations that aren't terribly cheap in an economy that yeah i know we had a 32 gdp number and and there's a reason why uh so you know this week we also have a payroll number we have we have the fed uh and i think we have other things that the market can focus on which get us back to some fundamentals i think the the the the parts of the rally today so our market conversation uh a rebound in housing i think is important and and and housing related trades because i think that is something that continues into the second part and notice oil oil has priced in the fact that basically uh a blue wave and and and yet today uh it acted very different i think there's good news uh in oil especially on the expectation that the surprise might be something that is not priced in oil
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