different, but given the similarities on the legislative side of things, we wonder why volatility hasn't already begun moving higher," he said.
Douglas Peebles, chief investment officer for fixed income at Alliance Bernstein, added: "Don't short volatility. Because all roads lead to it. There is going to be less liquidity and more question marks about gridlock and growth. That's painful to sit through, but it's fertile ground" for increasing returns.
For longer-term mom-and-pop investors whose exposure to markets is concentrated in their 401ks, increasing cash holdings could offer some protection, particularly for older savers heavily invested in typical stock and bond funds.
SITTING ON CASH
Dan Yu, managing director of EisnerAmper Wealth Advisors LLC, said his clients' portfolios are sitting on cash of between 10 to 12 percent, up from 2 to 3 percent in July. "We're cash-heavy but I might be a buyer if we see a 5 percent pullback in the stock market," Yu said.
After the 2011 debt ceiling fight ended with Standard & Poor's stripping the United States of its AAA credit rating, the benchmark S&P 500 index had one of the most volatile years in the market's history, logging the first zero percent performance in decades.
But as the credit crunch in 2008 taught investors, even cash isn't safe when panic and forced selling ensue.
That's because many money market funds invest in short-term cash equivalents such as T-bills, which in this case could be most at risk if the U.S. government goes into technical default.
Reserve Money Market Fund shares fell below $1 in 2008 when it was forced to write off debt issued by Lehman Brothers, whose failure marked the depth of the global financial crisis.
Investors have been avoiding Treasury bills that come due in mid-to-late October and early November, which have the highest risk of a default.
That has pushed one-month Treasury bill yields above those offered on longer-dated Treasuries. One-month yields rose to 0.13 percent on Thursday, the highest since November, and well above the 0.02 percent three-month yield.
Most investors expect longer-dated U.S. Treasuries to hold up fairly well in the leadup to the debt ceiling showdown, and perhaps to