September State Farm® Market Recap

Back to Market 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 month’s recap for September 2009 reflects on the continuation of the global equity market rebound, fueled by low interest rates, low inflation pressures, and improving economic data.  In the bond markets, corporate, high-yield, and U.S. Treasury bond prices all advanced causing yields to retreat. Commodity prices saw an overall rise , while crude oil prices closing over $72 per barrel.

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

U.S. stocks continued to climb during September with all ten sectors within the S&P 500 Index posting positive returns for the month. 

Economic data continued to point in a positive direction on the whole.  It was reported that U.S. economic output in the 2nd quarter fell less than previously estimated, with the Commerce Department revising its GDP figure to -0.7% from  -1.0%.  The general consensus among economists was that U.S. economic growth resumed in the 3rd quarter.  However, the pace of layoffs continued to remain an issue, with 254,000 private sector jobs lost in September.  

In the end, U.S. stocks climbed higher in September with small-cap stocks, as represented by the Russell 2000 Index, leading all domestic equity markets with a gain of 5.77%.  Mid-cap stocks (as represented by the Russell Midcap Index) and large cap stocks (as represented by the S&P 500 index) also produced solid gains of 5.67% and 3.73% for the month, respectively.  Over the longer five-year timeframe, the S&P 500 Index, Russell Midcap® Index and the Russell 2000® Index are all in positive territory with average annual returns of 1%, 3.9%, and 2.4%, respectively.  Growth stocks outperformed Value stocks across all market capitalizations during September.      

From an industry sector perspective, the Industrials sector outperformed all others during the month, climbing over 6.5%, as manufacturing activity improved and airline stocks benefited from an anticipated increase in travel.  Consumer Discretionary stocks also posted strong results, rising 5.2% as consumer spending ticked up during the month.  Energy, Materials, and Information Technology stocks also outperformed the broader market during September.   

Health Care was the weakest sector, rising 0.9% for the month as Congress continued to debate health care reform.  Financials stocks took a breather after two solid months and lagged the broader market, rising 1.9% for the month.  More defensive sectors, such as Utilities and Consumer Staples, also lagged the broader market during the month, climbing 1.1% and 3.3%, respectively.  

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

European equit y markets also posted gains amid signs of economic growth, increasing consumer confidence and tame inflation data. The MSCI Europe Index was up 4.6% in U.S. dollar terms for September as all countries within the index posted positive returns for the month.  Among European markets, Greece and Norway gained the most during the month, climbing 11.6% and 11.3%, respectively.  Sweden was the weakest European equity market, but still posted a gain of 0.9% during September.  Over the longer five-year timeframe, European equities have produced positive average annual returns of nearly 7%.  From a currency perspective, the euro gained against the U.S. dollar while the British pound sterling weakened by nearly 2% for the month. 

Japanese stocks declined -1.7% in U.S. dollar terms amid uncertainty surrounding new political leadership and how it would confront a sluggish economy and a rising yen.  Over the longer five-year timeframe, Japanese equities remained in positive territory during September, with an average annual return of 2.4%.  The Japanese yen gained 3.6% against the U.S. dollar during the month, putting further pressure on several export-focused stocks.

Emerging markets stocks soared as the MSCI Emerging Markets Index finished up 9.1% for the month as commodities and energy prices climbed.  On a year-to-date basis, emerging market stocks are up nearly 65%.  

Switching our focus to the U.S. fixed income markets, bonds gained ground as inflation remained subdued despite improving economic data.  Corporate bonds continued to perform well in response to stabilization of the economy and positive news in the financial sector.  U.S. Treasuries gained ground as yields fell slightly across the yield curve. Municipal bonds posted a gain for the month due to increased confidence among investors.

For the month, yields decreased across the U.S Treasury yield curve with yields on long-term bonds losing more ground than shorter-term issues.  Benchmark short-term Treasury interest rates still remained anchored by the Fed’s near-zero interest rate policy. 

Among major U.S. fixed income indices , the Barclays Capital U.S. Aggregate Bond Index gained over 1.0 % for September.  High-yield bonds also posted solid gains with the Barclays Capital High Yield Index climbing 5.7% during the month.  Year to date, high-yield bonds have gained over 49%.   Municipal bonds also increased in September with the Barclays Capital Municipal Bond Index gaining 3.6% bringing its year to date return to 14%.  Over the longer one- and five-year timeframes, municipal bonds have produced positive total returns of 14.9 % and 4.8 %,  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.    The global equities markets have staged an impressive rally from their March lows in anticipation of an eventual recovery.  The question that remains is how strong an economic rebound is likely to be?    

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.

AP2009/10/3361.

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 Index, a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. The MSCI Europe Index consists of the following 14 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland, and the United Kingdom.

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.