Current Monthly 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 is the recap for the month of February 20-14.

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Global equity markets posted solid gains in February despite mixed economic reports in the U.S. and escalating tensions in the Ukraine.

Let's first take a look at the U.S. equities markets.

Despite severe weather that appeared to contribute to a slowdown in the economy, U.S. stocks rallied in February. For the month, the S&P 500 Index climbed 4-point-6 percent, the Dow rose 4-point-3 percent, and the Nasdaq increased 3-point-2 percent. Through the first 2 months of the year, both the S&P 500 Index and the Nasdaq remained in positive territory, while the Dow was down.

Several factors drove February's strong market performance. Corporate earnings were stronger than expected, with growth rates up 8-and-a-half percent at month-end, well above the estimated 6-point-3 percent at the end of 20-13. Economic reports were mixed for the month, with severe weather to blame for softer auto sales, a drop in housing starts, and weaker-than-expected job growth. New employment numbers improved in January after December's poor performance, but still came in well below expectations. Construction activity and sales of existing homes slowed in January, although sales of new homes rose at the fastest pace in more than 5 years.

From a sector perspective, materials turned in February's best performance, as U. S. crude oil and natural gas prices rallied after a succession of winter storms increased heating usage and lowered inventories. Consumer discretionary was the second leading sector for the month, as a number of retailers reported positive results for the holiday season. Telecommunication services was the only sector to end the month in negative territory, weighed down by AT&T's 4 percent decline. Year-to-date through February, 5 of the 10 S&P 500 sectors have posted positive returns, while the other 5 have declined.

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

International equity markets moved higher in February, responding to news that the euro-zone continued to maintain slow but steady economic growth in the fourth quarter of 20-13, and deflationary pressures improved. For February, the M-S-C-I Europe, Austra-lasia, and Far East Index posted a 5-point-6 percent total return. Meanwhile, despite geo-political tensions in the Ukraine, the M-S-C-I Emerging Markets Index posted a 3-point-6 percent total return, its first monthly advancement since October.

Japanese stocks ended the month lower, after a string of poor economic reports suggested that country's economy was starting to lose momentum. While the world's third-largest economy grew over 1-and-a-half percent in 20-13, its best performance in 3 years, it slowed to less than half-of-1 percent during the fourth quarter, presenting a major challenge for the Bank of Japan's commitment to reviving the economy.

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

Bonds posted modest results for the month as the Federal Reserve's new chairwoman, Janet Yell-len, announced she would not make any abrupt changes to the U.S. monetary policy. For the month, U.S. investment grade bonds gained 1-point-2 percent and advanced their year-to-date total return to 2 percent. As demand outpaced supply, municipal bonds also advanced for the month, gaining 1-point-2 percent and advancing their year-to-date total return to just over 3 percent. One note of interest, municipal bond funds registered inflows the last 3 weeks of February, and 6 of the 9 weeks thus far in 20-14. In comparison, muni bond funds had inflows for only 11 weeks during all of 20-13, according to Lipper, a Thompson Reuters company.

In other bond market news, the U.S. Treasury yield curve flattened during February as yields on longer-term Treasuries decreased while yields on shorter-term Treasuries increased. At month end, the yield on the benchmark 10-Year Treasury note, used to determine mortgage rates and other consumer loans, closed at 2-point-6-6 percent, while the yield on the 30-year Treasury Bond closed the month at 3-point-5-9 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.

Despite the cold and snowy weather earlier this year that appeared to contribute to a slowdown in the economy, U.S stocks recently rallied to reach new all-time highs. Will the financial markets see additional gains once spring and warmer temperatures finally arrive? Tune in next month to check current developments.

Securities issued by State Farm VP Management Corp. For more information call 1-800-447-4930.

This recap has been prepared by State Farm VP Management Corp. for informational purposes and should not be considered a recommendation to purchase or sell any security. Any opinions discussed herein reflect our judgment as of the date of publication and are subject to change without notice.

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 MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

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.

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