After two consecutive weeks of gains, the SPDR S&P 500 ETF Trust (NYSE: SPY) has now erased its initial losses following the Russian invasion of Ukraine.

A growing number of analysts are concerned that the market will not be able to hold up against the “Two P’s,” Russian President Vladimir Putin and U.S. Federal Reserve Chair Jerome Powell.

Cash Is King: On Thursday, Richard Saperstein, chief investment officer at New York’s Treasury Partners, said Powell and Putin have made it prudent for wise investors to sell stocks and raise their cash holdings for now.

Related Link: Economist Now Calling For Back-To-Back 0.5% Fed Interest Rate Hikes

“While the stock market is attempting to recover from its correction, markets are fundamentally riskier and more uncertain than before Russia’s invasion of Ukraine. Today’s markets are being driven by the war and geopolitics — the epitome of unpredictable outcomes,” Saperstein said.

The ongoing war has significantly raised the risks of shocks in the financial, energy and agricultural markets that pose a real threat to corporate earnings and stock market valuations, he said. 

How To Play It: For now, Saperstein recommends dialing back exposure to stocks and raising exposure to cash to reduce risk and provide flexibility in the event of another market downturn.

Yet if investors insist on staying highly exposed to stocks, he prefers U.S. equities over international equities. In addition, he is overweight oil stocks and large-cap technology stocks, suggesting the Energy Select Sector SPDR Fund (NYSE: XLE) and the Technology Select Sector SPDR Fund (NYSE: XLK) could be relatively insulated from market weakness.

Saperstein said even if markets survive the disruption Putin has created in Ukraine, Powell said this week that the Federal Reserve is open to 0.5% interest rate hikes if necessary.

Saperstein says his base-case outlook is for Russia and Ukraine to reach some form of compromise that gives Putin an acceptable “off-ramp,” a scenario that would likely trigger a “modest” relief rally in stocks and decline in energy prices.

The worst-case scenario would be if the war in Ukraine transitions to a long-term slog or if a desperate Putin opts to employ non-conventional warfare, scenarios in which stock prices could see significant further downside.

Benzinga’s Take: The U.S. markets have incredibly taken the Ukraine invasion mostly in stride, which is surprising given the amount of risk it has injected into the global economy. It appears a timely resolution to the conflict has already been priced into the stock market to some extent, creating downside risk if that resolution doesn’t actually occur in the near future.