Investors are underestimating the likelihood of a President Bernie Sanders, according to billionaire Jeff Gundlach.

Gundlach, who correctly predicted Trump's presidency, believes Sanders is the "odds-on favorite" to win the Democratic presidential nomination.

"Financial markets broadly will have to deal with the fact there could be a scare," Gundlach, said during a webcast Tuesday evening.

And Gundlach did not rule out that Sanders could beat Trump.

A Sanders presidency could be a worst-case scenario for Wall Street. The US senator has vowed to take on big banks, raise taxes on corporations and the rich, curb stock buybacks and outlaw fracking.

Yet near-record stock prices suggest investors are not pricing in much of a chance of Sanders taking the White House.

Sanders is only given a 31% chance of winning the Democratic nomination on predictions market PredictIt, compared with 43% for Biden.

"Bernie is stronger than people think," Gundlach said.

Gundlach is skeptical about the other leading Democrats, arguing Pete Buttigieg is "so very young," the party won't nominate a billionaire like Michael Bloomberg and Elizabeth Warren is "down for the count."

And Gundlach reminded investors that many doubted Trump's ability to win the 2016 GOP nomination.

Update: The Sanders campaign has crafted a clever response to Gundlach.