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Yellen and Putin: New Odd Couple Driving the Markets

Gary Black

I am surprised the market is not selling off more, given Russia’s latest provocative convoy incursion into Ukraine. But Chair Yellen didn't exactly exude confidence at Jackson Hole and yet wasn't dovish enough to delay expectations of a first rate hike past next summer. In my view, the simple decision matrix for getting stocks right this summer continues to be:

Yellen Putin Market Results
Dove Good Positive
Hawk Bad Negative
Dove Bad Flat
Hawk Good Flat

So, the market looks like it may tread water and digest its recent gains near term before becoming more volatile in September given a rich economic calendar culminating in another Fed meeting on September 16 and 17.

In the meantime, Chair Yellen can't possibly get more dovish as the August employment report nears, and Putin can't be up to any good sending a 280-truck convoy into Ukraine for purely humanitarian reasons.

Longer term, we remain bullish. We believe 3% GDP growth and sub 2% inflation, 6-8% S&P 500 earnings growth, and strong buyback and M&A activity driven by attractive valuations and cheap financing set the market up for further gains.





The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

The information in this report should not be considered a recommendation to purchase or sell any particular security. The views and strategies described may not be suitable for all investors. As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.

Dovish refers to economic policy that supports low interest rates to keep inflation in check. A hawk favors higher interest rates to keep inflation contained.

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