The Dow Ignores Putin as Boeing, United Technologies Keep Calm

Posturing from the Russian president didn't have any negative impact on the Dow or much positive effect on defense stocks.

May 23, 2014 at 12:30PM
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The Dow Jones Industrials (DJINDICES:^DJI) had gained 59 points as of 12:30 p.m. EDT Friday, as investors remained upbeat about the economic outlook for the U.S. and most of the world. What's particularly remarkable about today's gain is that provocative statements from Russian President Vladimir Putin had no apparent effect on the blue-chip index, while Dow defense stocks Boeing (NYSE:BA) and United Technologies (NYSE:UTX) posted only modest gains that were in line with the average's overall climb rather than reflecting any of the typical impact that would be expected during a heightened defensive posture.

G

Putin's comments indicated the impact that the Ukraine conflict has had on relations between the U.S. and Russia. In recent days, Russia has worked harder to forge greater economic ties with China, including a 30-year agreement between Russia's Gazprom and China to supply Russian natural gas for the Chinese population. The deal could be worth as much as $400 billion, and although gas likely won't start flowing until 2018 to 2020, the move will have a much more immediate impact on geopolitical and economic crosscurrents throughout the world.

Utx

Source: United Technologies.

Meanwhile, Putin has referred to the situation in Ukraine as an outright civil war, and although the Russian leader has said he would respect election results in Ukraine, many look instead at the escalating rhetoric as laying a foundation on which to base further aggression if the situation deteriorates. In particular, with many of the eastern and southern portions of the country having substantial numbers of ethnic Russians, Putin could easily justify a future move based on local results of national elections, or use future localized violence as a justification for more dramatic action.

Ba

Source: Boeing.

Yet with this as background, the Dow Jones Industrial Average didn't suffer as it has on past occasions when tensions between Russia and Ukraine appeared to be on the rise. Moreover, Boeing, United Technologies, and the rest of the defense industry didn't see major moves in their share prices today. The main reason appears to be that throughout the defense sector, companies have already done their best to diversify away from full reliance on the U.S. federal government for defense-contract support, instead promoting their civilian and commercial operations or establishing multinational agreements with a host of government bodies around the world. Boeing, for instance, has much more at stake from commercial airliner sales than from military projects. United Technologies has also cast its lot with the civilian aerospace sector, as well as other commercial opportunities outside of aerospace that stand to benefit from a recovering economy.

It's clear that Putin and other internationally important leaders can do things that will move the Dow Jones Industrials. But without any dramatic shift in tone from Russia, Dow investors appear resigned to the Ukraine situation being an issue for the foreseeable future, and so day-to-day moves aren't likely to hinge on what comes from Moscow at any given time.

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