Editors' pick: Originally published Sept. 8.
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It's been a topsy-turvy ride in the political arena as the candidates head into the final 60 days leading up to the U.S. presidential election. With Hillary Clinton and Donald Trump now running neck-and-neck, the feelings of uncertainty are starting to spill into the equity markets. And some experts are suggesting investors start moving some of their cash away from equities and into bonds - in both their trading accounts and 401(k)s - as a precaution.
Historically, a presidential election tends to be good for investors, with the S&P 500 rising 6% on average during election years since 1944, according to Sam Stovall, a managing director and U. S. Equity Strategist at S&P Global Market Intelligence. Even September - which tends to be the weakest month of the year for investors - usually fares better in an election year, he said.
However, with the 2016 presidential race getting tighter, uncertainty is escalating, especially over the prospects of a Trump presidency.
"With Clinton, the market has a better grasp of what her Administration would be like as she's indicated she would maintain Obama's policies," said Francisco Torralba, senior economist at Morningstar Investment Management. "But with Trump, the sense is we don't know what we would be getting - and the market doesn't like uncertainty."
In particular, there are concerns about Trump's talk about tearing up trade deals.
"Undoing trade agreements would have a direct impact on equities," said James Swanson, chief investment strategist at MFS Investment Management.
Indeed, companies in the S&P 500 get 44% of their revenue from outside the U.S., noted Stovall.
This doesn't mean Wall Street necessarily prefers Clinton's policies - it just means it hates uncertainty more.
"The devil we do know is better than the devil we don't know," said Stovall.
There are concerns on Wall Street about Clinton's proposals to hike capital gains taxes and other issues.
But experts said fears about individual campaign promises are overblown. They believe it's unlikely one party will wind up controlling the presidency, House and Senate. And since most policy changes and trade agreements require Congressional approval, many promises made by presidential hopefuls on the campaign trail may never see the light of day.
"The president can't just do things willy-nilly - they need the support of Congress," said Stovall.
The election angst is exacerbated by other noise in the market: weak corporate profits, frothy stock valuations, a lengthy bull market and the threat of higher interest rates.
All three major U.S. stock indexes - S&P 500, Nasdaq Composite and Dow Jones Industrial Average - hit record highs in August. And the bull market is now in its eighth year without a major correction.
"There's a lot inherent risk in these stocks and we're in a period in the marketplace that only rivals 2007 and 2000 in the recent past," said Brad Lamensdorf, a market strategist and co-portfolio manager of the Ranger Equity Bear Exchange Traded Fund (HDGE).
Many believe the market is nearing the end of the cycle. And any shock - even an election surprise - could be enough to tip it over the edge. Torralba believes the market has priced in a Clinton win at this point.
"A Trump victory could be that negative shock that could tip the U.S. economy into a recession," said Torralba.
As a result, several experts are recommending investors start moving a portion of money out of equities and into high quality corporate bonds.
"We've witnessed four quarters of weakening profits, and yet the stock market is going up," said Swanson. "You don't want to be in a situation where stock prices go up while the fundamentals that support them are going down."
Investors who are heavily weighted in stocks should act first.
Experts say the shift away from equities isn't just for investors' trading accounts either. It's also for people with 401(k)s, who might be wise to move a portion of the "opportunistic" part of their accounts into bonds.
"If you have, say, 10% of your portfolio managed opportunistically, maybe that 10% should be more into bonds and less into stocks," said Torralba. The amount, of course, depends on the investor's age, aversion to risk and how close the person is to retirement, he said.
Lamensdorf is even more bearish and suggests investors move most of their money out of stocks before the election.
"The only way to really make money in the market is to be a bit of a contrarian," said Lamensdorf. "You have to be willing to do some selling when everyone else is complacent and be willing to do some buying when everyone else is fearful."
Lamensdorf expects a pullback in the market about six months after the new president is elected, which will allow investors to buy back in. He adopted a similar strategy in late 2015.
"In February [of 2016], that 10% down move was probably one of the best buying opportunities in three years," said Lamensdorf, who urges investors not to be complacent. "Nobody rings a bell at the bottom or the top."
This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.