The Ukrainian crisis is not likely to recede into the background anytime soon. Promising Russian statements about the withdrawal of troops are refuted by the West and Ukraine, near where the exercises are taking place. There were a series of accusations and denials about the shootout in Donbas in the morning, which triggered impulsive selling of risky assets.
The local momentum of the markets’ decline was less than what we saw on Friday following Biden’s statements about Russia’s impending attack on Ukraine. Still, the latest news clearly shows that we should not hope for smooth and quick exhaustion of the conflict and a favorable resolution in the coming days.
So far, however, there are more signals that Eastern European politicians still want a diplomatic, not forceful solution, which forms a modest reduction in the pull towards security.
The Fed was also on the side of the stock market bulls yesterday. The published minutes of the January meeting were not as hawkish as investors had expected. The FOMC at the end of last month did not consider a 50-point rate hike in March and did not talk about the need for seven hikes this year.
Then we had the labor market report, which showed strong growth in employment and wages, and even later came frightening figures about inflation accelerating to 40-year highs. Yesterday the retail sales figures added to it. Americans bought harder than expected in January, and some observers attribute that to a rush of demand due to inflation fears and a spike in auto and apparel prices.
The Fed might revise its view to a more hawkish one after bullish reports, but the markets did breathe a sigh of relief, managing to pull the S&P 500 and Russell 2000 into the green at the end of Wednesday.
Meanwhile, the S&P 500 and Dow Jones Industrial Average continue to struggle behind the 200-day moving average, with no victory signals for the bulls or the bears in this local battle. Investors and traders should pay close attention to this struggle, as a sharp pullback to one side or the other could set the direction for the days and weeks ahead.