Investors want fewer candidates, more substance

Wall Street wants to see a shakeout that would narrow the field of candidates and shift the dialogue to important issues affecting the economy and taxes, after Wednesday's Republican presidential debate on CNBC.

"I'm looking forward to this debate because the first two were mostly insults and generalities. I think this one is going to get more specific on tax reform," said Greg Valliere, chief global strategist with Horizon Investments.

The main debate is at 8 p.m. ET Wednesday, and features the 10 candidates who have received more than 3 percent in a group of national polls. The field has shifted just ahead of that debate, with a new national poll showing Ben Carson moving up, and Donald Trump losing the lead, for the first time in months.

Four other candidates who averaged less than 2.5 percent in the polls will be in a preliminary debate at 6 p.m. ET Wednesday.

"The markets like certainty, and I think people would like to see a front-runner start to emerge, and they would like to see it start to gather some momentum, and it doesn't have to be one person. I think the market would like to see it come down to two or three primary candidates," said Rick Rieder, chief investment officer of fundamental fixed income at BlackRock.

Rieder said the topics of taxes and health care are important, and he particularly would like to see what the candidates have to say about trade and China .

The debate could have been even thornier on the issue of the budget and entitlement programs had congressional leaders and the White House not reached a tentative deal to increase spending modestly and raise the debt ceiling. Without the deal, the government would have run out of funding next week and defaulted on its debt for the first time.

Read More Some GOP ideas would cause recession: Ex-Bush aide

Balancing the budget should remain a talking point but the solution of limiting entitlements, like Social Security or Medicare , could be difficult for the candidates.

"Do you really want to cut the daylights out of entitlements? Good luck with that in an election year," said Valliere. "I think it's politically toxic."

Tax reform is a top concern on Wall Street, and investors will be looking for clarity from candidates on their plans.

"There's a consensus view among Republicans of cutting marginal rates both on the individual side and the corporate side, and some move toward tax simplicity. I think that's what investors expect the candidates to talk about," said Brian Gardner, political analyst at Keefe, Bruyette & Woods. "You're not going to get a lot of 'bash the rich' from the Republicans."

Carson, a retired neurosurgeon, has proposed a flat 10 percent personal income tax. "On economic issues, Carson could hit some potholes, especially on taxes. Every single one of these people will say they're going to balance the budget soon. How are you going to do that? None of them have the specifics. It would involve dramatic cuts in entitlements," said Valliere.

The new New York Times/CBS News poll Tuesday gave Carson a narrow edge over Trump , with 26 percent to Trump's 22 percent of GOP primary voters.

Gardner said Wall Street wants to see tax plans that keep taxes low on capital gains and dividends. "(Donald) Trump has criticized the treatment of carried interest. He attacked it from the perspective of hedge fund managers, but hedge fund managers don't really take advantage of carried interest the way private equity does. I think in this environment private equity is not going to get too much sympathy," he said.

Carried interest allows the general partner of a private investment fund to share the fund's profits, and pay a lower capital gains tax rate. Gardner said he would like to hear Trump's view on whether carried interest is important for the real estate industry.

"If you look at Trump and Bush, they're the same plan, but they have different rates. Trump goes lower than Bush," said Strategas' head of policy research, Dan Clifton. "The reason there are similarities between the plans is because we're getting at the idea that the U.S. has a very uncompetitive corporate tax rate. Not only do we have the highest corporate tax rate in the industrialized world — 35 percent — we also have the highest effective tax rate. And we're one of six countries that double taxes foreign earned income."

Trump proposes a top income tax rate of 25 percent and a top capital gains rate of 20 percent.

Clifton said Ohio Gov. John Kasich may prove interesting on the tax and budget debate, and he will point to his success in Ohio and in Congress. "He was the former budget chairman in the House of Representatives that had the first balanced budget in a generation," said Clifton. "He believes in tax reform."

Analysts say it's the focus on economic issues that could thin the field. "If you think about this debate, the establishment are moving toward Marco Rubio. I think people are really souring on Bush. If that's the case, and Kasich can do well in this debate, it could split the establishment if they're moving away from Jeb Bush," said Clifton.

Valliere said Wall Street still favors Bush. "Still to this day, even though a lot of people on Wall Street are getting nervous about their bet on Bush, I think he still has a lot of support on Wall Street. There's also a lot of pressure on three people whose campaigns have stalled. That would be Bush, Carly Fiorina and Kasich," said Valliere. "I think all of them need a very strong debate."

Rieder said besides seeing just a few candidates come to the fore, he is hoping to get clear articulation of where candidates stand with regard to tax policy and also China.

"China particularly, the markets are so sensitized to global trade and commodities, that any clarity around where the candidates stand would be helpful," he said.

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Clifton said he too expects China to be an important topic, particularly since the IMF is going to consider including the Chinese currency in its Special Drawing Rights basket, which could soon give it reserve currency status. Inclusion in this basket could increase central bank demand for the yuan and elevate China's influence in the global economy.

The debate around trade is likely to be aimed at the Trans-Pacific Partnership, a trade pact agreed to by the Obama administration with 11 countries. Trump has slammed it, and critics claim it will hurt U.S. labor, favoring cheaper goods from other countries. Democratic front-runner Hillary Clinton also opposes the plan.

But supporters say it should create more open markets for products from American companies, like Apple; simplify the regulatory framework; and provide protections while boosting the economy. The TPP is expected to be voted on in 2016.

"Trump views this differently — it's an outsourcing of U.S. jobs. There's a number of members of Congress who will be on the stage who have to vote on it. (Texas Sen.) Ted Cruz for instance was for this issue before he was against it. ... Initially Cruz voted yes but then he changed his vote on the day of the final vote," Clifton said. "I think there are some who are going to be for it. I don't see how Carly Fiorina can come out against it. ... She knows the importance of this stuff. They're all making this case against Obama." Fiorina is a former CEO of Hewlett-Packard.

Gardner said there are signs the TPP could be in trouble.

"I think people had been worried about a growing sense of protectionism. It does seem that lawmakers who had been traditional supporters of the trade deal are keeping their powder dry," Gardner said. "Is this a sign that more Republicans are moving into the protections camp? I think they're all going to be rather circumspect. I would think Jeb Bush would probably be more supportive. I would think Jeb Bush would be pro-TPP. I could see (N.J. Gov.) Chris Christie being pro and Rand Paul, probably. I could see Cruz and Rubio being more circumspect."

The Affordable Care Act — or Obamacare — will also be an issue, with candidates lined up against it. "You've got taxes. You've got trade and you've got health care. The question is how do you repeal something that 15 million people already have? " said Clifton.

Read More GOP candidates on retirement and student debt

Analysts said there could also be some criticism aimed at the Fed, as candidates are likely to suggest a more rules-based process for Fed policy decisions. The central bank meets Wednesday and is not expected to raise interest rates. It releases its post meeting statement just hours before the third GOP debate begins.

"I wouldn't be surprised if the Fed comes up. Trump has become increasingly critical that the Fed is too accommodative and others will say the Fed is printing money. It's an easy target for conservatives because the base is very suspect of the Fed. The leading Fed basher is Rand Paul, but it will be interesting to see if others bash the Fed," said Valliere.

Clifton said the candidates could be more critical of the Fed than Wall Street, a frequent target of Democrats in their recent debate.

"There's generally this belief that (former Fed Chairman Ben) Bernanke used QE3 to get Obama re-elected, and there's a view the Fed is printing money," said Clifton.

Gardner said from the perspective of the financial sector, what investors want to see most is a sense of capable leadership. "If nothing else, I think what the markets want more than anything else is competence. I don't think they're looking for specifics on policy. I think they're looking for someone who can think on their feet and show they have sense of how the economy works," he said.

Watch CNBC's "Your Money, Your Vote: The Republican Presidential Debate" on Wednesday, October 28. The debate will feature two sets of candidates discussing critical issues facing America today, including job growth, taxes and the health of our economy. Coverage begins at 5 p.m. ET.

Correction: This story has been corrected to reflect that Valliere is the chief global strategist with Horizon Investments.

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