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May 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 May 2012.
Equity markets tumbled for a second consecutive month in May as investors reacted to continuing turmoil in the Eurozone, and weak reports on the U.S. labor market and overall economic activity. For the month, stocks, as measured by the S&P 500 Index, posted a 6.0 percent loss marking their worst performing month since the 7.0 percent decline experienced last September.
Lets first review the U.S. equities markets.
In the U.S., stocks sold off during May as investors became increasing nervous about the uncertainty of the European financial crisis and signs of a slowing U.S. economy. Disappointing job numbers, here in the U.S., sent the markets lower for the month with the unemployment rate climbing to 8.2 percent, up from 8.1 percent in April. For the month, the S&P 500 Index fell 6.0 percent recording its eighth worst May in history and the worst since the 8.0 percent loss experienced in May of 2010. In May, mid-cap stocks as measured by the Russell MidCap Index, led all domestic equity markets lower for the month with a loss of 6.7 percent followed by small cap stocks, as measured by the Russell 2000 Index down 6.6 percent for the month.
Every sector within the S&P 500 was down during the month except for telecommunication services which avoided the trend and posted a 2.6 percent gain. Energy suffered the worst decline falling more than 10.0 percent amid rapidly falling oil prices which fell to USD $84 a barrel by month-end. Financials, materials and information technology also lost ground for the month falling 9.3 percent, 8.0 percent, and 7.9 percent, respectively. Year-to-date consumer discretionary, telecommunication services and financials lead the S&P 500 sectors in price return posting positive returns of 10.1 percent, 7.6 percent, and 7.4 percent, respectively. In May, Value stocks held up slightly better than Growth stocks for the month.
Lets now turn our attention to the foreign equities markets.
Global equity markets continued their downward direction in May with several countries within the Eurozone posting double-digit losses as investors remain concerned about the political, social, and economic turmoil within the region. The main concern was Greece, where preliminary elections were unsuccessful in a giving a single party the autonomy to form a coalition government. As a result, Greece led all of the developed countries lower for the month declining 30.3 percent followed by Portugal and Austria which lost 18.7 percent and 18.5 percent, respectively.
Japanese stocks also lost ground in May declining 8.9 percent in U.S. dollar terms, as Chinas economic slowdown continued to weigh on the markets. During the month, credit rating agency Fitch downgraded Japans sovereign debt rating two levels from double A to A plus over concerns about the countrys high debt to GDP ratio.
The negative results the global markets experienced in May erased the positive gains recorded year-to-date with the MSCI EAFE Free Index posting a negative 3.8 percent total return for the period. Over the longer 1- and 5-year periods, the MSCI EAFE Free Index has posted negative returns of 20.5 percent, and 7.3 percent, respectively.
Lets now switch our focus to the U.S. fixed income markets.
In the U.S. fixed income markets, U.S. Treasuries rallied taking yields back to historic lows as deteriorating sovereign-debt conditions in Europe sent investors fleeing towards the relative safety of U.S. government bonds. For the month, the Barclays U.S. Aggregate Bond Index ended the month with a modest 0.9 percent total return. Over the longer 1- and 5-year time periods, long-term government bonds have posted positive total returns of 7.1 percent and 6.7 percent, respectively.
High-yield bonds sold off during the month as cautious investors stayed away from taking on risk. As a result, the Barclays High-Yield Index, ended the month down 1.3 percent.
Municipal bonds edged out a modest gain in May with the Barclays Municipal Bond Index advancing 0.8 percent for the month. Over the longer 1- and 5-year periods, municipal bonds have posted positive returns of 10.4 percent, and 5.9 percent, respectively.
Interest rates declined to near record lows during the month as investors seeking shelter from the faltering financial system in Europe, sought out the relative safety of U.S. Treasuries. As a result, the yield on the benchmark 10-Year Treasury Note ended the month at 1.59 percent a level not seen since December 2008. The 30-Year Treasury Bond yield also moved towards record lows ending the month at 2.67 percent, down from Aprils month-ending 3.12 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.
The U.S. economy has demonstrated strong resilience despite deteriorating economic conditions in several regions around the globe. But with continued U.S. growth threatening to fall short of what is needed to reduce unemployment and move the economy forward are we close to the point where the Fed needs to take action by adding more monetary stimulus?
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.
Mutual Funds Disclosures
It is not possible to invest directly in an index.
The Russell 2000® Index tracks the common stock performance of the 2,000 smallest U.S. companies in the Russell 3000® Index
The Russell 2500 Index tracks the 2,500 smallest companies in the Russell 3000 Index.
The Russell 1000 Index is a stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index.
The Russell Midcap Index measures the performance of the mid-cap segment of the US equity market and is a subset of the Russell 1000 Index.
The Dow Jones Industrial Average is an unmanaged average of 30 actively traded stocks.
The NASDAQ Composite is an unmanaged market capitalization weighted index that is designed to represent the performance of the National Market System.
The S&P 500® Index tracks the common stock performance of 500 large U.S. companies.
The S&P 1500 Index is a stock market index of U.S. stock that includes all stocks in the large cap S&P 500 Index, the mid cap S&P 400 Index, and the small cap S&P 600 Index.
The Morgan Stanley Capital International Europe, Australasia and Far East Free (EAFE® Free) Index currently measures the performance of stock markets of Europe, Australia, New Zealand, and the Far East.
The Morgan Stanley Capital International Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe.
The Barclays Capital 1-5 Year U.S. Treasury Index measures the performance of short-term U.S. Treasury Securities maturing within one to five years.
The Barclays Capital U.S. Aggregate Bond Index represents debt securities in the U.S. investment grade fixed rate bond market.
The Barclays Capital Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.
The Barclays Capital High Yield Index includes all fixed income securities having a maximum quality rating from Moodys Investor Service of Ba1, a minimum amount outstanding of $100 million, and at least one year to maturity.
The Barclays Capital TIPS Index measures the performance of the US Treasury Inflation-Protected Securities (TIPS) market.
The Citigroup 3 Month T-Bill Index is an average of the last 3-month Treasury bill issues (excluding the current month-end bill).
The FTSE EPRA/NAREIT Developed REIT and Non-Reit Index is a subset of the Developed Index, which is designed to track the performance of listed real estate companies and REITS worldwide.
The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.
The Nikkei 225 Index is a price-weighted index comprised of Japans top 225 blue-chip companies on the Tokyo Stock Exchange.
The Credit Suisse High Yield Index is designed to mirror the investible universe of the $U.S. Denominated high yield debt market.
Standard & Poors®, S&P®, S&P 500®, Standard and Poors 500, and 500 are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by State Farm Life Insurance Company, State Farm Life and Accident Assurance Company and the State Farm Variable Product Trust. Neither the Large Cap Equity Index Fund nor the Stock and Bond Balanced Fund is sponsored, endorsed, sold or promoted by Standard & Poors, and Standard & Poors makes no representation regarding the advisability of investing in the Large Cap Equity Index Fund or the Stock and Bond Balanced Fund.
The Russell 2000® Index is a trademark/service mark, and Russell is a trademark of the Frank Russell Company. The Small Cap Equity Index Fund is not sponsored, endorsed, sold or promoted by, nor in any way affiliated with the Frank Russell Company. Frank Russell Company is not responsible for and has not reviewed the Small Cap Equity Index Fund nor any associated literature or publications and Frank Russell Company makes no representation or warranty, express or implied, as to their accuracy, or completeness, or otherwise.
The EAFE® Free Index is a trademark, service mark and the exclusive property of Morgan Stanley Capital International, Inc. (MSCI) and its affiliates and has been licensed for use by the State Farm Variable Product Trust (the Trust). The International Equity Index Fund (the Fund), based on the EAFE® Free Index, has not been passed on by MSCI as to its legality or suitability, and is not issued, sponsored, endorsed, sold or promoted by MSCI. MSCI makes no warranties and bears no liability with respect to the Fund. MSCI has no responsibility for and does not participate in the management of the Fund assets or sale of the Fund shares. The Trusts Prospectus contains a more detailed description of the limited relationship MSCI has with the Trust and the Fund.
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