In my article, Yellen vs. Putin - Who Wins?, I pondered which market influencer would wield the most power. When authored, Janet Yellen had just given her speech in Jackson Hole, focusing on labor market slack, and thus removing tension around the issue of Fed rate hikes. Vladimir Putin was charging his aid convoy into Ukraine against the protest of the west, and was caught red handed sneaking some military hardware in via a second secret convoy. In my first fight follow up, I gave round 1 to Yellen, as the market rallied into record territory, with the S&P 500 breaking 2000. We are here today to report that round 2 has gone to Putin, but just barely on points. The SPDR S&P 500 (NYSE: SPY) slipped fractionally Thursday, as NATO confirmed Ukrainian claims that significant Russian hardware and troops had entered Southeastern Ukraine and were engaging Ukrainian troops therein. Heading into the long weekend, with Ukraine calling up reservists and Russia warning against such action, it seems likely the SPDR S&P 500 will slide again.
The 5-day chart of the SPDR S&P 500 ETF illustrates the latest turmoil and the reason why we gave the round to Putin. Yet, Yellen almost pulled out another win for the SPY Thursday, and the ETF claimed higher ground into midday Friday. But, as the SPY approaches the long weekend, I expect investors will take risk off. It's the prudent thing to do given the event risk that overshadows stocks today. For this reason, I advise day traders to sell the SPY here, as I believe the near-term future for it is red.
In the wake of Yellen's speech, good news is good news again, so that any positive economic data offers support for stocks. When the market feared the Fed could move on rates faster than it had hoped, then strong GDP data and other data threatened stocks. Today, though, as Yellen focuses on the vague issue of labor market slack as a reason to hold back on rates, well good news is celebrated.
Over the past couple days, second quarter GDP was revised slightly higher from an already strong level to 4.2%. Pending Home Sales was reported improved as well. So, all the pegs were in place for Yellen to take the round. Friday, the Personal Income & Outlays data was unfavorable, showing the first month-to-month decrease in consumer spending (-0.1% in July) in six months. But consumer sentiment was reported improved at the close of August, so the data perhaps was offset by the more recent information. It certainly helped that the Chicago Purchasing Managers Index surged higher to a mark of 64.3, from 52.6 in July. That shows significant economic expansion in August, versus July's mild growth. So, on average, the data was favorable for stocks Friday, but before the close, the latest threat from Russia was expected to weigh heavier.
The latest headlines show Russian troops and military hardware have entered Ukraine and are engaging in battle against Kiev forces. President Obama's statement yesterday that there was no American military option on the table for Ukraine, while probably the right strategy, will not prove helpful to the Ukrainian cause in my opinion. Russia's Putin now seems to have free reign to Ukraine without fear of U.S. rebuttal, at least of the sort that might stop Putin. The issue is being taken up in the U.N. Security Council, though Russia holds veto power as a permanent member.
Ironically, this is good news for stocks and should be supportive of the SPY, since deeper engagement between Russia and the U.S. is limited. Though, as we saw this week, covert warfare, like in the case of the alleged hacking of U.S. banks by Russians, remains a serious threat to the U.S. economy and dollar. This dollar threat is the key reason why I see this geopolitical issue as different from the rest, and favorable for gold.
There's no telling as to what happens next, and the weekend is a long one. As I scribbled here, closing out this report near 2:00 PM ET, the SPY was edging lower off its gains. I fully expect it to end the day in the red due to the event risk that lingers for the weekend, so traders are advised to sell the SPY ETF. Thus, Putin clearly takes this round over Yellen as the market's key influencer. I cover the market daily, so readers may want to follow my column to receive my updates.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.