Cling to cash? This chart shows how stocks, bonds perform around U.S. elections

By Christine Idzelis

Investors should probably prepare for more volatility around the U.S. presidential election - and move out of cash, says Nuveen

Market volatility may rise to elevated levels around the upcoming U.S. presidential election, but clinging to cash around such periods hasn't paid off historically for investors, according to investment manager Nuveen.

"With the U.S. elections in focus, investors should prepare for additional volatility and a variety of policy changes," Nuveen's global investment committee said in a report on the firm's fourth-quarter outlook. They also "should also use the opportunity to move out of cash."

Nuveen studied the past seven U.S. election cycles, finding that cash, defined as one-to-three-month Treasury bills, "significantly" lagged the average return of a variety of areas within fixed income, as well as stocks in the six months preceding and following the elections.

The U.S. presidential election will be held Nov. 5.

Meanwhile, the Federal Reserve last month decided to begin lowering its benchmark interest rate. Fed Chair Jerome Powell pointed to a significant decline in the rate of U.S. inflation, with the central bank recalibrating its monetary policy as it aims to keep the labor market solid.

Read: 5-year Treasurys tend to beat cash after first Fed rate cut, this chart shows

The stock market was trading about flat Wednesday afternoon, as investors watched the Middle East amid worries over a widening war. They also assessed a fresh report from paycheck company ADP showing U.S. businesses added more jobs in September than Wall Street expected.

The S&P 500 SPX and Dow Jones Industrial Average DJIA were each down less than 0.1% in afternoon trade, while the Nasdaq Composite COMP slipped 0.1%, according to FactSet data, at last check.

The S&P 500 has climbed almost 20% this year based on Wednesday afternoon trading levels, while the broad U.S. bond market has also posted gains. For example, the iShares Core U.S. Aggregate Bond ETF AGG, which provides broad exposure to U.S. investment-grade bonds, has seen a total return of 4.6% so far in 2024 as of Wednesday afternoon.

Yields on 3-month Treasury bills BX:TMUBMUSD03M were at 4.59% on Wednesday, but would be vulnerable to going lower by year-end if the Fed keeps cutting rates as Wall Street expects.

Read: The stock market is entering the most volatile month of an election year - but the rally may be here to stay

-Christine Idzelis

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10-05-24 0822ET

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