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 December 2014.

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After a mixed December, broad U.S. equity markets finished 2014 with their sixth consecutive year of positive gains. The S&P 500 Index®, a benchmark for the U.S. equities market, established closing highs a record 53 times during the year, while the Dow Jones Industrial Average® broke through the 18,000 level for the first time in its 118-year history.

Now let's first review the U.S. equities markets.

U.S. stocks recorded another great year as the S&P 500 Index posted its third consecutive year of double-digit gains, ending 2014 with a 13.7 percent total return. Of noteworthy mention within this positive market performance is the fact that this was the first calendar year in which the S&P 500 Index avoided four consecutive days of declines. For the year, an estimated 74 percent, or 373 stocks, within the S&P 500 advanced while an estimated 25%, or 125 stocks, declined. During the year, fundamentals continued to support the market, as both corporate earnings and cash flows continued to set all-time highs. Share buybacks accounted for another strong trend for the year, which played a role in the increase in earnings-per-share we saw for some companies. Meanwhile, the amount of cash dividend payments that companies issued continued to rise, posting their fourth consecutive year of double-digit gains.

In terms of sector performance, the top performers for the month were Utilities, Financials and Consumer Discretionary. Energy rebounded somewhat as oil began to stabilize during December, before declining near month end. This battered sector fell 8 percent for the year and now represents the worst performing sector over the past three years. For 2014, five of the ten S&P sectors finished the year with double-digit gains, led by Utilities, Health Care and Information Technology.

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

Global equity markets declined broadly in December, in U.S. dollar terms, due to stagnant growth across the eurozone and elsewhere, falling oil prices, and the ongoing currency weakness, especially with the euro and yen. Over the past twelve months, the U.S. dollar gained more than 13 percent against the euro and Japanese yen and approximately 6 percent against the British pound. For the year, international developed and emerging markets declined approximately 5 percent and 2 percent, respectively.

Among Asia's developed markets, the Japanese economy followed-up its second quarter contraction with continued negative growth in the third quarter, contracting 1.9 percent as it slipped into recession. For December, the MSCI Japan Index lost 1.4 percent and closed the year with a 4 percent decline, in U.S. dollars.

Finally, let's switch our focus to the U.S. fixed income markets.

Bonds rallied in December as disappointing economic data in Europe and Asia drove the demand for relative safe-haven U.S. assets. For the month, U.S. investment grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, advanced 0.7 percent and finished the year posting a 6.0 percent total return.

Finally, the municipal bond market closed out the year with its best string of monthly gains in more than two decades, outpacing gains in corporate bonds and U.S. government debt. For the year, the Barclays Municipal Bond Index advanced 9.1% including price gains and interest payments.

As we wrap-up this broadcast let's give some consideration to what is commonly referred to as the "January barometer." The barometer tells us that if stocks are up in January, then the rest of the year should bode well for equities. In fact, since 1945, in years when the market was up in January, 84% of the time the market continued to rally through the end of the year. How will the U.S. stock market begin 2015? Tune in next month to check current developments and thank you for listening to the State Farm Market recap.

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This recap has been prepared by State Farm VP Management Corp. for informational purposes and should not be considered a recommendation to buy or sell any security. Any opinions discussed herein reflect our judgment as of the date of publication and are subject to change.

Securities are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.

Neither State Farm nor its agents provide investment, tax, or legal advice.

The S&P 500® Index tracks the common stock performance of 500 large U.S. companies.

The MSCI Japan Index is designed to measure the performance of the large- and mid-cap segments of the Japan stock market.

The Barclays U.S. Aggregate Bond Index represents debt securities in the U.S. investment grade fixed rate taxable bond market.

The Barclays Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.

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AP2014/12/2044

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