April State Farm® Market Recap

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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 month’s recap for April 2009 reflects on the second straight month of positive returns in the global equities markets, sparked by improvement in some economic data and a further thawing of the credit markets. In addition, bond prices also advanced and commodity prices generally increased, with crude oil ending the month over $53 per barrel, up 18% year-to-date through April 30.      

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

U.S. stocks climbed on a series of solid earnings reports, growing economic optimism and signs of improving stability in the credit markets.   

Despite a historic bankruptcy filing by Chrysler, fears of a swine flu pandemic, and worse than expected GDP figures, investors focused on signs that the deep economic contraction might be lessening and helped to push stock prices higher during the month.  Providing an additional boost to the equity markets, several large companies including Google, Wyeth, Intel, and Ford Motor, reported better-than-expected earnings during the month.    

Economic data was mixed for the month, with signs of a gradual recovery in some areas.  First-quarter GDP sank 6.1% and unemployment climbed to 8.5% during March – the highest level since 1983.  On a brighter note, pending home sales rose unexpectedly, home price declines in major cities slowed for the first time in two years, and durable goods orders fell less than forecast.   

In the end, U.S. stocks staged a broad rally for the second straight month during April.  Small-cap stocks, as represented by the Russell 2000® Index, led all U.S. equity markets higher during the month with a gain of 15.5%.  The Russell Midcap® Index and large cap S&P 500 Index also posted sizable gains of 15.4% and 9.6%, respectively.  Value stocks performed better than Growth stocks across all market capitalization's during the month.    
Over the one-year timeframe, mid cap stocks have declined the most with the Russell Midcap Index falling -36.0% while the large cap S&P 500 Index and the small cap Russell 2000 Index have declined -35.3% and -30.7%, respectively.  In addition, driven by the magnitude of the losses over the past twelve months, the Russell Midcap® Index is the only major U.S. equity market index posting a positive five-year average return.   

From an industry sector perspective, Financial's stocks performed the strongest and advanced over 22% during the month.  Within the Financial's sector, banking stocks were particularly strong, driven by positive earnings reports and news that many companies that received federal loans through the Troubled Asset Relief Program were in a position to repay the funds as soon as it was permitted.  Optimism spilled over into other cyclical sectors, including Consumer Discretionary, Industrials and Information Technology stocks - which all produced double-digit percentage increases during the month.

More defensive industry sectors, such as Utilities and Consumer Staples, also produced positive gains during the month, but lagged most other sectors within the S&P 500 Index.  Health Care was the only sector to post negative returns as Abbott Laboratories and Merck reported weak earnings.

Let’s now turn our attention to foreign equities markets.

All European equity markets posted strong gains for the second straight month as investors were cheered by news of further economic stimulus.  Among European markets, Finland gained the most during the month, climbing over 28%.  Switzerland gained the least, rising a respectable 7.8%.  The United Kingdom was also strong, posting a 12.6% gain in April.  From a currency perspective, the euro lost ground against both the British pound sterling and the U.S. dollar during the month.  For April, the MSCI Europe Index gained nearly 14.2% in U.S. dollar terms, but remains in negative territory for the one-year period with a loss of -45%.   However, over the longer five-year timeframe, European equities have produced positive average annual returns of 1.5%.

Japanese stocks also gained ground, rising 9.6% during the month in U.S dollar terms as the Japanese government announced another economic stimulus plan totaling more than $150 billion.  Economic news in Japan remained largely negative, though some data improved.  The Japanese yen strengthened slightly against the U.S. dollar during the month. Over the one year timeframe, Japanese stocks have lost nearly -34.5% in U.S. dollar terms.  Japanese equities have also produced negative average annual returns over the longer five-year timeframe of -2.4%.

In the U.S. fixed income markets, bonds posted overall gains during the month as positive returns on corporate issues helped compensate for a decline on long-term U.S. Treasuries. The Fed’s continuing support for the credit markets, such as the Term Asset-Backed Securities Loan Facility (TALF) and the central bank’s purchases of long-term government debt, appeared to be generating positive results in April.  Also, although investors remained worried about the banking system, a strong rally in financial's stocks suggested increasing confidence that banks’ problems would prove manageable.

For the month, the treasury yield curve steepened as yields rose on long-term bonds while declining on shorter-term issues. Yields on short-term securities remained anchored by the Fed’s near-zero interest rate policy, while long-term yields increased in response to signs of economic growth, worries over the long-term impact of increased government borrowing, and investors’ move back into riskier assets. Among major U.S. fixed income indexes, the Barclays Capital U.S. Aggregate Bond Index gained 0.5% for the month, and over the one-year timeframe, the Index has gained 3.8%.  On a three-year and five-year basis, bonds have generated a total return of  6.0% and 4.8%, respectively, highlighting the positive effect bonds can have in an investors asset allocation mix over longer periods of time.  High-yield bonds saw strong gains during the month as investors grew more confident about economic conditions.  For the month, the Barclays Capital High Yield Index climbed over 12%. However, over the one-year timeframe, high-yield bonds have lost over -13% and are slightly positive over the longer five-year timeframe. 

Municipal bonds also produced a positive total return in April as the Barclays Capital Municipal Bond Index gained 2.0%.  Over the longer one- and five-year timeframe's, municipal bonds have produced positive total returns of 3.1% and 3.9%, respectively.

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.    Can the global equities markets record gains for a third straight month or will stocks reverse course and test the lows posted in March 2009?

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.

State Farm Mutual Funds are available through prospectus by State Farm VP Management Corp., One State Farm Plaza, Bloomington, Illinois 61710, 1-800-447-4930. Please read the Prospectus and consider the investment objectives, risks, charges and expenses and other information it contains about State Farm Mutual Funds carefully before investing. AP2009/05/2780

Past performance is no guarantee of future results. 

It is important to note that there is market risk involved when investing in mutual funds, including possible loss of principal.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.  Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Diversification does not ensure a profit or protect against losses in a declining market.

It is not possible to invest directly in an index.

Securities, insurance and annuity products are not FDIC insured, are not guaranteed by State Farm Bank and are subject to investment risk, including possible loss of principal.

The stocks of small companies are more volatile than the stocks of larger, more established companies.
Investments in bonds are subject to interest rate, credit and inflation risk, including those issued by the U.S. Government.   There is risk that the bonds a fund holds may decline in value due to an increase in interest rates
Investing in foreign securities involves risks not normally associated with investing in the U.S. including higher trading and custody costs, less stringent accounting, legal and reporting practices, potential for political and economic instability, and the fluctuation and potential regulation of currency exchange and exchange rates.

Investing in emerging markets involves risks not normally associated with investing in developed countries including, but not limited to, greater market volatility, lower trading volume, political and economic instability, greater risk of market shut down and more governmental limitations on foreign investment policy than those typically found in a developed country.

The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap Index represents approximately 31% of the total market capitalization of the Russell 1000 companies.

The Russell 2000® Index tracks the common stock performance of the 2,000 smallest U.S. companies in the Russell 3000® Index, which represents approximately 10% of the total capitalization of the Russell 3000® Index.
The Dow Jones Industrial Average is an unmanaged average of 30 actively traded stocks (primarily industrial) and assumes reinvestment of dividends.

The NASDAQ Composite is an unmanaged market capitalization weighted index that is designed to represent the performance of the National Market System, which includes over 5,000 stocks traded only over-the-counter and not on an exchange. Its return is based on price change only and does not include income.

The S&P 500® Index tracks the common stock performance of large U.S. companies among various industries. In total, the S&P 500 is comprised of 500 common stocks.

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 and takes into account local market restrictions on share ownership by foreigners. EAFE® Free is meant to reflect actual opportunities for foreign investors in a local market. Returns are measured in U.S. dollars.

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. Returns of the Barclays Capital 1-5 Year U.S. Treasury Index do not reflect any deductions for taxes.

The Barclays Capital U.S. Aggregate Bond Index represents debt securities in the U.S. investment grade fixed rate bond market, including government and corporate debt securities, mortgage pass-through debt securities and asset-backed debt securities with maturities greater than one year.

The Barclays Capital Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market and is made up of investment grade municipal bonds issued after December 31, 1990, having a remaining maturity of at least one year.

The Barclays Capital High Yield Index includes all fixed income securities having a maximum quality rating from Moody's Investor Service of Ba1, a minimum amount outstanding of $100 million, and at least one year to maturity.