- Fed Chair Yellen produced a Goldilocks sort of testimony yesterday.
- Russia's President Putin played peacemaker and lifted a weight off the back of the market.
- Putin & Yellen produced a cocktail cure for what ailed the market, but let's hope it was not just lip service.
Russian President Putin's apparent about-face Wednesday seemed to signal that the latest round of economic pressure applied by the West has gotten the attention of the Russian leader. Meanwhile, Federal Reserve Chairwoman Yellen said she saw a fairly robust economic recovery developing, while at the same time suggesting geopolitical events, slack in the labor force and recent housing issues call for accommodative Fed rate policy. The combination of events served as a sweet cocktail for stocks Wednesday, but as we move forward, the actions of the two influencers will speak louder than their words. While stocks rallied overseas this morning, there's already some skepticism coming through based on fluctuation in S&P futures action this morning and the intraday turn of the Russian MICEX Index, which was off just fractionally at my last check.
The SPDR S&P 500 (NYSEARCA:SPY) gained 0.6% Wednesday, recovering intraday on the news bursts produced by Vladimir Putin and Janet Yellen. The security measuring the S&P 500 Index was surpassed by the 0.8% gain in the SPDR Dow Jones Industrials (NYSEARCA:DIA), but it contrasted against the 0.3% drop of the PowerShares QQQ (NASDAQ:QQQ). The S&P 500 best measures the broader market today, with so few names included in the Dow Jones Industrials Index and the momentum stock catastrophe playing out within the NASDAQ. Earnings news is also adding alpha drivers to the index on the moves of important stock components. Tesla (NASDAQ:TSLA) was the latest to disappoint to shareholders, as its earnings report fell short for investors.
So what drove the best day for the S&P 500 in three weeks? Well, Vladimir Putin said he thought the pro-Russian protesters in Eastern Ukraine should hold off on their referendum votes for secession. He also suggested that Russian troops had pulled back from the Ukrainian border. These two issues have been a weight on the market of late, with high concern about what Ukraine and the West might do next if Russia were to invade or if other regions of Ukraine were to seek independence following the Crimea cut-off.
Add to the Putin pull-back the discussion offered by Federal Reserve Chair Yellen before the Joint Economic Committee of the U.S. Congress, and you have powerful catalysts for the stock market climb. The market first sank on the published prepared remarks of Yellen, but as she began to address the questions of the U.S. congressmen, stocks turned around. In her brutish New York accent, Yellen suggested the first quarter's sluggishness was on temporary factors including weather. She said there were already indicators showing a recovery in spending since the turn of the quarter. However, she kept the dove-lovers happy when she harped on the hampered housing recovery. She spoke of the improved labor market, while noting it remained far from satisfactory, showing slack in workforce participation and abnormally high levels of part-time employment. It was a Goldilocks sort of Fed discussion.
Moving forward, actions will speak louder than words for stocks and the SPY security. Yellen has indicated that while the extraordinary asset purchase initiative will be gradually eliminated, the Fed will hold its benchmark interest rate down "for a considerable time after the asset purchase program ends." Previously, Fed forecasts for what seemed like near-term rate increase stirred concern in traders, so Yellen's recent reassurances on this front have been supportive to stocks.
There's considerable debate as to whether Russia has pulled back its troops from its border with Ukraine. It seems the West considers the current troop positioning too close for comfort and relatively unchanged of late. Russia's Putin said that troops were in their normal training grounds and not on the border with Ukraine any longer. It seems Putin is playing a game of semantics, and seeking to present himself as a peacemaker, while possibly continuing to foment discord in Ukraine. On Wednesday, he also called on separatists to refrain from their planned near-term referendums for secession from the government in Kiev.
I expect Putin will only roll tanks if the separatists vote for secession and are confronted by Ukrainian troops thereafter. This is unfortunately a highly possible scenario, but perhaps Putin will play politics and take the issue to the U.N. and even involve China in the action to make an argument against the West's sanctions against him. In so doing, he may bring about some breaks in the unified position in Europe and even spur debate in America. He may get his control of Ukraine and shake sanctions at the same time. Fortunately for traders, though unfortunate for the world, that could be a scenario that serves stocks.
For now, I believe greed driven trade will spur the SPDR S&P 500 higher on high hopes pinned to Ukraine and Fed peace with the market. The momentum selloff could turn around at any moment as well now, in my view. So, I say buy the S&P 500 here and the SPY for the short term, because the tone has changed in favor of stocks. Let's hope Yellen and Putin are not just offering lip service, and that their actions will speak the same language as their words.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.