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Hi, thank you for joining us for Russell Market Week in Review for the week ending March 7,
2014. We're coming to you today from Russell's world headquarters in Seattle, WA. I'm Mark
Soupiset and I'm joined today by the Senior Investment Strategist for North America Doug
Gordon. Doug, thank you for being with us. Glad to join you Mark, appreciate it.
A volatile week no doubt. At the beginning of the week, Ukraine leading the headlines.
Markets really seemed to recover from that fairly well. Talk about the factors that went
into that to start us off. Sure. The geopolitical risk that we saw at
the start of the week was tied to the Russian move in Crimea, as well as the potential for
a move in Ukraine, which certainly disturbed markets as a potential disruption to European
energy markets, let alone a rising geopolitical risk, harkening back to the Cold War era with
respect to the West and Russia. I think, while there certainly were pressures potentially
on the foreign policy side, they didn't really materialize. Perhaps what drove the move in
Russia in terms of Putin's decision to pull back was more from internal pressures. We
saw devaluation in the Russian equity market close to 11% and even despite a 150 basis
point move by the Central Bank, we still saw the ruble weaken materially. So perhaps that
kept them in check. I want to say that all those concerns are off the table as a result
of that though, because we have a referendum coming up in Crimea with respect to their
sovereignty or their association with the central government in Kiev. But I think that
for the most part those have mitigated. Let's shift gears then and look at later in
the week when we had a non-farm payroll number come out this morning better than expected;
how's the market interpreting that? Yes, it was kind of a mixed bag. I think certainly
we exceeded expectations at 150,000 which was consensus and we came in at 175,000. There
were upward revisions to both January as well as December. Some of the internals inside
of it, we had a modest tick up at 1/10th to 6.7% on the unemployment rate, but we also
saw an improvement in the weekly wages by .4%. So while it was ahead of expectations,
you have to put that into context of where we've gotten to in terms of the multiple that
the market's priced to on the S&P 500. And generally, what's the outlook there in
terms of what that might mean for tapering? Is that something where the markets are a
little bit leery of this positive news because it might accelerate that?
I think we're out of the world where good news is bad news/bad news is good news, kind
of this perverse relationship, but we are in a case where this news will certainly give
the Fed the latitude, particularly in the muted inflation environment, to continue the
taper. And while we believe they were genuine with respect to saying that the decisions
on the taper would be data-driven, we certainly think that it's a very high bar with respect
to anything that would get them to step away from the $10 billion per month decrease in
the purchase program for Treasuries. Interesting. Let's wrap up with this. As I
said at the top, volatile week, geopolitical risks making headlines at the beginning of
the week, good US economic news here at the end of the week. What does all of this portend
for markets as we look to the future? Sure. Great question. If we look right now
at the S&P 500, we're trading at about a 17.5%-17.7% multiple on earnings. So that level is really
in line with our thoughts that we have seen the macroeconomic data validate that price
level, and that's our story really for 2014. I think what we'll have to watch is the pace
with which macroeconomic data improves. With this data point on the non-farm payroll number
certainly a step in that direction, we'll have to continue to see this validation such
that the economy doesn't seem to get in front of the Fed and the Fed doesn't seem -- either
in the yield space with respect to Treasuries -- to get in front of the economy. So I think
it's one of those where we'll continue to wait to see additional data points that would
validate the price levels that we've reached, which are certainly relatively high.
We'll continue to keep our eyes on this as always. Doug, I appreciate your time. Thank
you for being with us. And thank you for joining us for Russell Market Week in Review, we'll
see you next week.