June 2012 Recap

Hello, and welcome to the State Farm market recap audio broadcast. Each month, we offer a perspective on recent events impacting the financial markets in the U.S. and abroad. This is the recap for the month of June 2012.

Equity markets rallied higher in June reversing the downward trend experienced in April and May. The major U.S. indices saw much volatility throughout the month as investors tried to sort out the developments at home and overseas but moved solidly into positive territory after a strong market rally on the last trading day of the month.

Let's first review the U.S. equities markets.

In the U.S., stocks rebounded in June as investors turned more optimistic about the ability of European leaders to contain its debt crisis and directed their investments into equities and high-yield markets. Led by a strong 2.5 percent rally the last trading day of the month, the S&P 500 Index closed out the month with a positive 4.1 percent total return and increased its year-to-date return to a positive 9.5 percent. In June, small-cap stocks as measured by the Russell 2000 Index, led all domestic equity markets higher for the month, advancing 5.0 percent, followed by large-cap stocks which gained 4.1 percent and mid-cap stocks which advanced 2.8 percent, respectively.

Every sector within the S&P 500 posted positive results for the month, led by energy, telecommunication services and financials, which gained 5.6 percent, 5.4 percent, and 4.9 percent, respectively. Four of the S&P sectors are up more than 12 percent year-to-date including, telecommunication services, information technology, financials and consumer discretionary. In June, growth stocks outpaced value stocks across all market capitalizations.

Let's now turn our attention to the foreign equities markets.

Non-U.S. stock markets posted strong gains in June after experiencing back-to-back months of sharp declines. News that European leaders had agreed on a series of measures to relieve the region's debt crisis sent the markets on a one day rally the last trading day of the month. As a result for the month, the MSCI EAFE Free Index of developed countries posted a positive 7.0 percent total return while the MSCI EM of emerging countries advanced 3.9 percent.

Japanese stocks gained back some ground in June, climbing 5.1 percent in U.S. dollar terms, as falling commodity prices boosted exports and increased profitability for several of the country's largest manufacturers. Year-to-date the Japanese market is up 3.1 percent as the country continues to combat a rising yen and export pressures, each impacted by the European financial crisis.

Let's now switch our focus to the U.S. fixed income markets.

After a period of record inflows into U.S. Treasuries, investors reversed course and sought out the riskier assets of equities and high yield instruments. As a result, the Barclays U.S. Aggregate Bond Index ended the month with a slight 0.04 percent total return while high-yield bonds, as measured by the Barclays High-Yield Index, gained a modest 2.1 percent for the month. Over the longer 1- and 5-year time periods, long-term government bonds, as represented by the Barclays U.S. Aggregate Index, have posted positive total returns of 7.5 percent and 6.8 percent, respectively.

U.S. municipal bonds were relatively flat for the month as the Barclays Municipal Bond Index declined 0.1 percent. Over the longer 1- and 5-year periods, municipal bonds have posted positive total returns of 9.9 percent, and 6.0 percent, respectively.

U.S. Treasury Yields climbed higher across all time periods in June after experiencing near historic lows in May. As a result, the yield on the benchmark 10-Year Treasury Note closed the month at 1.67 percent up from 1.59 percent at the end of May. The 30-Year Treasury Bond yield, which touched 2.53 percent at the beginning of the month, climbed back to close the month at 2.76 percent.

With that, we will conclude this broadcast. Thank you again for listening to the State Farm Market Recap. Please join us again next month for the latest market review.

Financial analysts expect corporate earnings to decline nearly 2 percent for the April through June quarter compared to a year ago, breaking a streak of 10 quarters of positive year-over-year gains that started in the last quarter of 2009. How will the financial markets react if corporate earnings report less than a year ago?

Securities through registered representatives of State Farm VP Management Corp., One State Farm Plaza, Bloomington, Illinois 61710-0001, 1-800-447-4930.

This recap has been prepared by State Farm VP Management Corp. for informational purposes. The information contained herein has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Any opinions discussed herein reflect our judgment as of the date of publication and are subject to change without notice. This material should not be considered a recommendation to purchase or sell any security.