As the United States prepares to choose its next president, Wall Street finds itself in a state of cautious anticipation. With just one trading session left before the pivotal election day, traders are grappling with the potential implications of the outcome, while striving to maintain a balanced and prudent approach in the face of heightened volatility and uncertainty.

Treading Carefully Amidst the Election Storm

Betting on the Outcome: A Risky Proposition

Investing professionals are well aware of the potential windfall that could come from accurately predicting the election winner. However, the close and contentious nature of this race has made such a feat too risky for many to attempt. "We are not positioning for an outcome in the election because it is a coin flip," explains Eric Diton, president and managing director of the Wealth Alliance. "It does not make sense to make a bet."Traders are cognizant of the strong likelihood of a disputed result, which could prolong the vote count for weeks or even months. This prospect has contributed to a surge in the Cboe Volatility Index, a measure of market stress, further deterring investors from making bold bets on the election's outcome.

Navigating the Multitude of Catalysts

The upcoming election is just one of several significant events that are poised to shape the market's trajectory in the coming weeks. Investors must also contend with the Federal Reserve's interest rate decision and the release of a slew of corporate earnings reports, including the highly anticipated results from tech giant Nvidia.This confluence of events has led many traders to adopt a more cautious and defensive posture. As Dave Lutz, equity sales trader and macro strategist at JonesTrading, suggests, "sitting on some cash" that can be deployed when short-term opportunities arise may be the wisest approach.

Bracing for Volatility: Investors Seek Shelter

The market's jittery state is evident in the S&P 500's proximity to its all-time high, coupled with the elevated VIX, or "fear gauge." This combination has not been seen since the outbreak of the delta variant of COVID-19 in March 2021, underscoring the heightened level of uncertainty.Hedge funds, too, are positioning for increased price swings, with large speculators turning net long on the VIX futures for the first time since January 2019. Options markets data further corroborates this trend, as traders seek to protect their portfolios against the prospect of a rapid selloff.

Staying the Course: A Long-Term Perspective

While the immediate future may be shrouded in uncertainty, some Wall Street professionals advise investors to look beyond the election noise and focus on the broader economic fundamentals. Anwiti Bahuguna, chief investment officer of global asset allocation at Northern Trust Asset Management, highlights the resilience of corporate earnings, strong economic growth, and the potential for the Federal Reserve to cut interest rates as factors that could support the market in the long run.Similarly, Brian Mulberry, client portfolio manager at Zacks Investment Management, suggests that a more conservative approach may be appropriate, given the elevated volatility and the likelihood of continued interest rate hikes. "Interest rates are still restrictive and increasing volatility is more likely through the end of the year, so a more conservative approach is appropriate," he says.

Patience and Prudence: The Watchwords for Investors

Ultimately, the message from Wall Street seems to be one of patience and prudence. With no clear favorite in the election, the safest course of action may be to maintain a long-term perspective and avoid making hasty decisions based on the immediate political landscape.As Mark Luschini, chief investment strategist at Janney Montgomery Scott, aptly puts it, "If it was a cleaner call, it would be baked into the market and there would be little left to exploit. But in something this tight it is better to look over the horizon and maintain your thoughts on what the macroeconomic condition will look like six to 18 months from now, rather than just on the outcome on that day."