Volatility set to return amid US election uncertainty

Investing.com -- Investors should buy protection now as the volatility seen in August is likely to return amid a closely contested U.S. election race, according to a report released Tuesday by BCA Research.

"Investors should buy protection against further volatility. The shakeup in early August was a taste of things to come," the report showed. 

The report warns that investors are ignoring immediate risks to global stability stemming from the US election, which is a "pivotal moment in US and global history." 

Polling data suggests that Vice President Harris and former President Donld Trump are in a neck-and-neck race for the White House. BCA's chief geopolitical strategist Matt Gertken argues that "unpredictable events" could sway the outcome.

These events could include potential election interference from Russia, which may attempt to influence the race through tactics such an oil embargo or sabotage. The report suggest Russia may view a change3 in U.S. leadership as crucial to fulfilling its strategic objectives in Ukraine. 

The Middle East was flagged as another potential swing factor in the election race on expectations for further escalation in the region, BCA added.

Despite these risks, Gertken puts the odds of a Trump victory at 55%, and believes that Harris needs to show that she can withstand expected rises in global instability. 

As the election draws closer, these unpredictable events have the potential to create "negative surprises for markets," BCA said, increasing the need for investors to seek protection. 

To guard against volatility, BCA recommends increasing exposure to defensive and quality stocks while reducing exposure to cyclical sectors. The firm also recommends buying the U.S. dollar and Japanese yen against the euro, expecting a flight to safety as uncertainty grows.